Question
The current expected return on the Tesla stock is 43%, the riskless rate of interest is 2%, the return on the market portfolio is 15%
The current expected return on the Tesla stock is 43%, the riskless rate of interest is 2%, the return on the market portfolio is 15% and the standard deviation of the market portfolio is 20%
a. According to CAPM, what is the current beta of Tesla?
b. If the current standard deviation of returns on Tesla is 60%, what is the correlation coefficient between returns on Tesla and returns on the market portfolio?
c. What will be the beta of Tesla if the covariance of its returns with the market portfolio returns doubles?
d. According to CAPM, what is the new expected return on Tesla?
e. Please explain why investors pay higher return for Tesla when its covariance with the market portfolio doubles (one short paragraph).
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored 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