Question
1.) Use the basic capital asset pricing model (CAPM) to identify the answers of the following problems [CAPM: rj = RF + [ bj (
1.) Use the basic capital asset pricing model (CAPM) to identify the answers of the following problems [CAPM: rj = RF + [bj (rm RF)].
(i) Find the required return for an asset with a beta of 0.90 when the risk-free rate and market returns are 8% and 12% respectively.
(ii) Find the risk-free rate for a firm with a required return of 15% and a beta of 1.25 when the market return is 14%.
(iii) Find the market return for an asset with a required return of 16% and a beta of 1.10 when the risk-free rate is 9%.
2.) Explain how an increase in expected inflation and increased risk aversion impact the market security line (SML).
PLEASE SOLVE THESE BOTH QUESTIONS ASAP!! REALLY NEED HELP! THANK YOU:)
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