Question
(16.67 points Each question is equally weighted for the entire test to sum to 100 %). The Treasury bill rate is 2%, and the expected
- (16.67 points Each question is equally weighted for the entire test to sum to 100%).
The Treasury bill rate is 2%, and the expected return on the market portfolio is 12%. Using the Capital Asset Pricing Model (hereafter, CAPM) by William Sharpe (1964) with the given assumptions regarding the risk free rate and market rate to answer the following questions:
- Draw a graph similar to Figure 11.4 showing how the expected return varies with beta.
Hint:
As I am posting the exam, you may use the following: this is an embedded MS Excel Object(if you right click, it opens MS excel) and Chart, so if you set your cursor over the chart, and right click you mouse, then choose edit data, this may assist in understanding the Security Market Line concept, as well. Or you may choose to use your own.
- What is the risk premium on the market?
- What is the required return on an investment with a beta of 2.0? Is the beta above or below the Market beta?
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International Finance
Authors: Maurice D Levi
5th Edition
0415774594, 9780415774598
