Question

The rate on T-bills is currently 5%. P. Tree Company stock has a beta of 1.69 and a required rate of return of 15.4%. According to CAPM, determine the return on the market portfolio.

Answer 1

Answer:

11.15%

Explanation:

Given that

Risk free rate of return= 5%

Beta = 1.69

Expected rate of return = 15.4%

As per capital asset pricing model

Expected rate of return = Risk free rate of return + Beta × (Market rate of return - risk free rate of return)

15.4% = 5% + 1.69 × (Market rate of return - 5%)

After solving this

Market rate of return = 11.15%