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The beta of four stocks-----?G, ?H, I, and J----are 0.47?, 0.71?, 1.19?, and 1.55?, respectively and...

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Finance

The beta of four stocks-----?G, ?H, I, and J----are 0.47?,0.71?, 1.19?, and 1.55?, respectively and the beta of portfolio 1is 0.98?, the beta of portfolio 2 is 0.82?, and the beta ofportfolio 3 is 1.13. What are the expected returns of each of thefour individual assets and the three portfolios if the current SMLis plotted with an intercept of 3.0?% ?(risk-free rate) and amarket premium of 9.5?% ?(slope of the? line)? What is the expectedreturn of stock? G?

Answer & Explanation Solved by verified expert
3.9 Ratings (714 Votes)
As per CAPM model the expected return can be calculated by the following equation Expected return Risk free rate Beta Market return Risk free rate Here Market premium Market return Risk free rate In our question market premium is given so we will further reduce the above equation to below Expected return Risk free rate beta Market premium Now we will    See Answer
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The beta of four stocks-----?G, ?H, I, and J----are 0.47?,0.71?, 1.19?, and 1.55?, respectively and the beta of portfolio 1is 0.98?, the beta of portfolio 2 is 0.82?, and the beta ofportfolio 3 is 1.13. What are the expected returns of each of thefour individual assets and the three portfolios if the current SMLis plotted with an intercept of 3.0?% ?(risk-free rate) and amarket premium of 9.5?% ?(slope of the? line)? What is the expectedreturn of stock? G?

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