Interpreting beta A firm wishes to assess the impact of changes in the market return on an asset that has a beta of 0.9. a. If the market return increased by 15%, what impact would this change be expected to have on the asset's return? b. If the market return decreased by 9%, what impact would this change be expected to have on the asset's return? c. If the market return did not change, what impact, if any, would be expected on the asset's return? d. Would this asset be considered more or less risky than the market? Manipulating CAPM Use the basic equation for the capital asset pricing model (CAPM) to work each of the following problems. a. Find the required return for an asset with a beta of 0.38 when the risk-free rate and market return are 5% and 9%, respectively. b. Find the risk-free rate for a firm with a required return of 4.469% and a beta of 0.26 when the market return is 7%. c. Find the market return for an asset with a required return of 11.298% and a beta of 1.24 when the risk-free rate is 8%. d. Find the beta for an asset with a required return of 16.579% when the risk-free rate and market return are 6% and 13.1%, respectively. Security market line (SML) Assume that the risk-free rate, RF, is currently 9% and that the market return, rm, is currently 12%. a. Calculate the market risk premium. b. Given the previous data, calculate the required return on asset A having a beta of 0.4 and asset B having a beta of 1.3. Interpreting beta A firm wishes to assess the impact of changes in the market return on an asset that has a beta of 0.9. a. If the market return increased by 15%, what impact would this change be expected to have on the asset's return? b. If the market return decreased by 9%, what impact would this change be expected to have on the asset's return? c. If the market return did not change, what impact, if any, would be expected on the asset's return? d. Would this asset be considered more or less risky than the market? Manipulating CAPM Use the basic equation for the capital asset pricing model (CAPM) to work each of the following problems. a. Find the required return for an asset with a beta of 0.38 when the risk-free rate and market return are 5% and 9%, respectively. b. Find the risk-free rate for a firm with a required return of 4.469% and a beta of 0.26 when the market return is 7%. c. Find the market return for an asset with a required return of 11.298% and a beta of 1.24 when the risk-free rate is 8%. d. Find the beta for an asset with a required return of 16.579% when the risk-free rate and market return are 6% and 13.1%, respectively. Security market line (SML) Assume that the risk-free rate, RF, is currently 9% and that the market return, rm, is currently 12%. a. Calculate the market risk premium. b. Given the previous data, calculate the required return on asset A having a beta of 0.4 and asset B having a beta of 1.3
