Question
Over the past 70 years, the return on the market (S&P 500 index) exceeded the risk-free rate by an average of 6-8%. In other words,
Over the past 70 years, the return on the market (S&P 500 index) exceeded the risk-free rate by an average of 6-8%. In other words, the market risk premium (RM-RRF) has averaged between 6-8%. For your calculations, assume the market risk premium (RM-RRF) is equal to 6.5%. Given your assumed MRP and your answer to #6 above, calculate the required rate of return for your portfolio listed in Table 3. Use the formula from the CAPM (the SML line equation) Rs=RRF + (RM-RRF) Beta. In other words, what is the required rate of return on the portfolio using the CAPM? ________________________(Show your work.)
Table 3 Company # Company Name/ Ticker/ Dollar Amount Invested /Beta ( from Morningstar)
1 Ford F $27,000 / beta -1.36
2 Wal-Mart Stores Inc WMT $33,000 - 0.07
3 Home Depot HD $50,000- 1.06
4 3M MMM $20,000 - 0.92
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access with AI-Powered Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started