1. Business
2. Finance
3. The Capital Asset Pricing Model (CAPM)
4. 275133

See attached file.

8- 1 EXPECTED RETURN

A stock's returns have the following distribution:

Calculate the stock's expected return, standard deviation, and coefficient of variation.

8- 3 REQUIRED RATE OF RETURN
Assume that the risk- free rate is 6% and the expected return on the market is 13%. What is the required rate of return on a stock with a beta of 0.7?

8- 5 BETA AND REQUIRED RATE OF RETURN
A stock has a required return of 11%, the risk- free rate is 7%, and the market risk premium is 4%. a. What is the stock's beta? b. If the market risk premium increased to 6%, what would happen to the stock's required rate of return? Assume that the risk- free rate and the beta remain unchanged.

8- 7 PORTFOLIO REQUIRED RETURN
Suppose you are the money manager of a $ 4 million investment fund. The fund consists of four stocks with the following investments and betas:

If the market's required rate of return is 14% and the risk- free rate is 6%, what is the fund's required rate of return?

8- 11 CAPM AND REQUIRED RETURN
Calculate the required rate of return for Manning Enterprises assuming that investors expect a 3.5% rate of inflation in the future. The real risk- free rate is 2.5%, and the market risk premium is 6.5%. Manning has a beta of 1.7, and its realized rate of return has averaged 13.5% over the past 5 years.

Attachments

• chpt 8.doc