# CAPM

The average stock market return in 20-ieth century has been 9%. Consider a security whose average return has been 7%, and whose beta is estimated at 0.5.

If last year.s average market return was 7%, what would you expect the return on the security to be? Explain. If you think there is not enough information to answer the question, explain why.

https://brainmass.com/economics/risk-analysis/capm-returns-29350

#### Solution Preview

The average market return = 9%

The average return on security = 7%

Beta of security=0.5

According to CAPM model

Return on a security (r) = Risk free return(rf) + Market risk premium (rpm) *Beta

For market the equation is

9% = ...

#### Solution Summary

Using CAPM, various inquiries are solved.

$2.19