Assume that CAPM model holds. Also, consider expected market return (rm) of 10%, risk-free rate (rf) of 4%. If a security has a market beta (peta) of 0.5, what is the correct value of expected returns (ri) as per CAPM.
The Capital Asset Pricing Model (CAPM) describes the relationship between systematic risk, or the general perils of investing, and expected return for assets, particularly stocks. CAPM evolved as a way to measure this systematic risk. It is widely used throughout finance for pricing risky securities and generating expected returns for assets, given the risk of those assets and cost of capital.
def CAPM( market_return, risk_free_rate, market_beta ):
-Use the formula, CAPM = expected return(ri) = risk free rate + market beta *(market return (rm)- risk free rate (rf))
Note - Having trouble with the assessment engine? Follow the steps listed here
Loading comments...