Explore BrainMass
Share

Explore BrainMass

    CAPM Model

    This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

    A regression was run between Stock B and the market proxy portfolio, the S&P 500. The regression line is defined as: Y = 8.3 + 1.2X. If the risk-free rate is 4 percent, the market risk premium is 6 percent, and the market return on Stock B is 10.5 percent,

    (a) graph the security market line (SML) for Stock B.

    (b) determine if Stock B is overpriced, under-priced, or in equilibrium with the Capital Asset Pricing Model (CAPM).

    © BrainMass Inc. brainmass.com October 10, 2019, 12:48 am ad1c9bdddf
    https://brainmass.com/economics/risk-analysis/capm-sml-model-308002

    Solution Preview

    A regression was run between Stock B and the market proxy portfolio, the S&P 500. The regression line is defined as: Y = 8.3 + 1.2X. If the risk-free rate is 4 percent, the market risk premium is 6 percent, and the market return on Stock B is 10.5 percent,

    (a) Graph the security market line (SML) for Stock B.

    Slope of line given ...

    Solution Summary

    CAPM Model is assessed.

    $2.19