The current market price of a security is $50, the security's expected return is 15%, the...

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Finance

The current market price of a security is $50, the security'sexpected return is 15%, the riskless rate of interest is 2%, andthe market risk premium is 8%.
What is the beta of the security?
What is the covariance of returns on this security with thereturns on the market portfolio?
What will be the security's price, if the covariance of itsrate of return with the market portfolio doubles?
How is your result consistent with our understanding thatassets with higher systematic risks must pay higher returns onaverage?
show formulas and provide brief explanation of findings
Also, if possible to keep in text form. I have had a hard timereading hand writing in the past. Thank you!

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3.6 Ratings (285 Votes)

Current Market price of the security 50 Security Expected return ERi 15 Riskfree rate Rf 2 Market Risk Premium RMRf 8 a CAPM Equation ERi Rf iRM Rf 15 2 i 8 i 178 2125 Therefore Beta of the stock 2125 b Below is the formula for beta of See Answer

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The current market price of a security is $50, the security'sexpected return is 15%, the riskless rate of interest is 2%, andthe market risk premium is 8%.What is the beta of the security?What is the covariance of returns on this security with thereturns on the market portfolio?What will be the security's price, if the covariance of itsrate of return with the market portfolio doubles?How is your result consistent with our understanding thatassets with higher systematic risks must pay higher returns onaverage?show formulas and provide brief explanation of findingsAlso, if possible to keep in text form. I have had a hard timereading hand writing in the past. Thank you!