Question
You are analysing a share which has a beta of 1.33. Therisk-free rate is 3.4% and you estimate the market risk premium to be 6.5%.
You are analysing a share which has a beta of 1.33. Therisk-free rate is 3.4% and you estimate the market risk premium to be 6.5%. If you expect the share to have a return of 9.6% over the nextyear, should you buyit? Why or whynot?
The expected return according to the CAPM is ..................... %. (Round to two decimalplaces.)
Should you buy theshare?(Select the best choicebelow.)
A. No,becausetheexpectedreturnbasedonthebetaisgreaterthanthereturnontheshare.
B. Yes, becausetheexpectedreturnbasedonthebetais equal to or less than the return on the share.
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