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Do Homework - Cristian Clementi - Google Chrome Secure | https://www.mathxl.com yerHomework.aspx?homeworkId=448577573&questionld; = 1 &flushed; = false&cld-4704237;&centerwin; =yes FIN-350-MWF1230A-Fundamentals of Business Financs Cristian Clementi 12/3/17 7:18 PM Homework: Module 7, Chapter 8 Score: 0 of 5 pts P8-26 (similar to) Save 7 of 8 (1 complete) | HW Score: 10.42%, 4.17 of 40 pts Question Help Manipulating CAPM Use the basic equation for the capital asset pnicing model (CAPM) to work each of the following problems Find the required return for an asset with a beta of 1.37 when the risk-free rate and market return are 3% and 8%, respectively. b. Find te nsk-free rate lor a firm with a required return of 13 93096 and a beta of 1.98 when the market return is 11% c. Find the market return for an asset with a required return of 10.773% and a beta of 0.64 when the risk-free rate is g%. d. Find te beta for an asset with a required return of 8.543% when the risk-tree rate and market return are 4% and 9 9%, respectively The required return tor an asset with a beta of 1.37 when the risk-tree rate and market return are 3% and 8%, respectively, is 96. Round to two decimal places.) a. Enter your answer in the answer box and then click Check Answer Clear All Check Answer O Type here to search 7:18 PM 12/3/2017

Explanation / Answer

a.

Required rate of return = 3% + (8% - 3%) × 1.37

= 3% + (5% × 1.37)

= 3% + 6.85%

= 9.85%.

Required rate of return on assets is 9.85%.

b.

13.93% = RF + (11% - RF) × 1.98

13.93% = RF + 21.78% - 1.98RF

0.98RF = 21.78% - 13.93%

RF = 8.01%

Risk Free rate is 8.01%.

c.

10.773% = 9% + (MR - 9%) × 0.64

1.773% = 0.64MR - 5.76%

MR = 7.533 / 0.64

= 11.77%

Market return is 11.77%.

d.

Beta = (8.543% - 4%) / (9.90% - 4%)

= 4.543% / 5.90%

= 0.77

Beta of stock is 0.77.

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