Question
Assume that the market is in equilibrium and that stock betas can be estimated with historical data. The returns on the market, the returns on
Assume that the market is in equilibrium and that stock betas can be estimated with historical data. The returns on the market, the returns on United Fund (UF), the risk-free rate, and the required return on the United Fund are shown below. Based on this information, what is the required return on the market, rM?
|Year | Market | UF
| 2011 | -9% | -14% |
| 2012 | 11% | 16% |
| 2013 | 15% | 22% |
| 2014 | 5% | 7% |
| 2015 | -1% | -2% |
| RF: 7.00% | United: 15.00% |
Step by Step Solution
There are 3 Steps involved in it
Step: 1
To calculate the required return on the market rM you can use the Capital Asset Pricing Model CAPM T...
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Financial management theory and practice
Authors: Eugene F. Brigham and Michael C. Ehrhardt
13th edition
1439078106, 111197375X, 9781439078105, 9781111973759, 978-1439078099
