Question
You are analyzing two assets: collectible LEGO sets, and stock of Apple. In the last 5 years, LEGOs have had an annual volatility of 5%,
You are analyzing two assets: collectible LEGO sets, and stock of Apple. In the last 5 years, LEGOs have had an annual volatility of 5%, annual return of 6%, and a CAPM beta (the correlation coefficient between the asset and the market risk-premium) of 1.6. Apple has had an annual volatility of 10%, an annual return of 8%, and a CAPM beta of 1.2.
If the risk-premium of the market is currently 7% and the risk-free rate is 2%, what is the expected return of LEGO sets this year in %? (HINT: remember that CAPM beta is the sensitivity to the market risk premium: To calculate expected return, use E(r) = rf + beta* (market rf) as opposed to E(r) = beta*market
answer in % (please round to 1 decimal place)
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