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    CAPM Model - Calculating Expected & Risk Free Return

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    A) Find the Expected Rate of Return on the Market Portfolio given that the Expected Rate of Return on Asset "i" is 10%, the Risk-Free Rate is 3%, and the Beta for Asset "i" is 1.5.

    B) Find the Risk-Free Rate given that the Expected Rate of Return on Asset "j" is 14%, the Expected Return on the Market Portfolio is 12%, and the Beta for Asset "j" is 1.5.

    Also, how do you figure out risk free rate?

    © BrainMass Inc. brainmass.com October 9, 2019, 9:49 pm ad1c9bdddf
    https://brainmass.com/economics/risk-analysis/capm-model-calculating-expected-risk-free-return-198454

    Solution Preview

    Solution 1:

    Ke=Krf+Beta*(Km-Krf)
    ke is expected rate of return =10%
    krf is return on risk free asset = 3%
    Km is expected market return = ?
    Beta = 1.5
    Put these values in equation and get
    0.1 = ...

    Solution Summary

    Solution explains the steps in determining expected rate and risk free return using CAPM model.

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