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can you please help with this section? I am stuck on it. thank you Mini Case # 4 (Portfolio Returns and Beta and the CAPM
can you please help with this section? I am stuck on it. thank you
Mini Case \# 4 (Portfolio Returns and Beta and the CAPM model) 10 Marks You are considering an investment with a of 1.50. At this time, the risk-free rate of return Rf is 7%, and the return on the market Rm is 10% . You believe that the investment will earn an annual rate of return of 11%. Required: a) If the return on the market portfolio were to increase by 10%, what would you expect to happen to the investment's return? What if the market were to decline by 10% ? b) Use the CAPM to find the required return on this investment when Rm is 10% c) On the basis of your calculation in (b), would you recommend this investment? Why or why not? d) Assume that as a result of investors becoming less risk-averse, the market return drops to 8%. What effect would this change have on your responses in parts (b) and (c)Step by Step Solution
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