The current market price of a security is $50, the security's expected return is 15%, the riskless
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Question:
The current market price of a security is $50, the security's expected return is 15%, the riskless rate of interest is 2%, and the market risk premium is 8%.
a.What is the beta of the security?
b.What is the covariance of returns on this security with the returns on the market portfolio?
c.What will be the security's price, if the covariance of its rate of return with the market portfolio doubles?
d.How is your result consistent with our understanding that assets with higher systematic risks must pay higher returns on average?
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