Question

Based on the Capital Asset Pricing Model assuming the securities are correctly priced and given the following information, what is the return on the market?

Security Beta Expected Return
Katmai Outfitters 0.74 0.087
Wrangell Adventures 1.63 0.159

Answer 1

Th return on the market is 0.08.

What is the return on the market?

According to the capital asset pricing model, the expected return of an asset is a function of the risk free rate, beta and return on the market.

Expected return = risk free rate + (beta x return on the market)

0.087 = a + 0.74b

0.159 = a + 1.63b

Where:

a = risk free rate

b = return on the market

Subtract equation 1 from equation 2

0.072 = 0.89b

b = 0.072 / 0.89

b = 0.08

To learn more about beta, please check: https://brainly.com/question/17007831

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