4 Question 80f 20 ons Probiem 8.16 Check My Work o Click here to read the eBook:

Question

4 Question 80f 20 ons Probiem 8.16 Check My Work o Click here to read the eBook: Risk in a Portfolio Context: The CAPM Click here to read the eBook: The Relationship Between Risk and Rates of Return CAPM AND PORTFOLIO RETURN You ha e been managing a $5 million portfolio that has a beta in a stock with a beta of 1.60, what will be the required return on your $5.5 millionp 0 of 1.80 and a required rate of return of 13%. The current risk-free rate is 6.75%. Assume that you receive another S500,000 1 you invest the money ortfolio? Do not round intermediate calculations. Round your answer to two decimal places. 12.98 Hide Feedback o Ineorrect Check My Work Problem 816 4 Question 8 of 20 a

Explanation / Answer

According to CAPM,

Required rate of return = risk free rate + beta*market risk premium

13% = 6.75% + 1.8*market risk premium

market risk premium = 3.472%

Now, calculate the required rate for a stock with beta of 1.6

Required rate of return = 6.75% + 1.6*3.472% = 12.31%

Required return = 12.31%

Related Questions

Navigate

• Browse (All)
• Browse 4
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.