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Risk free return is at 5% and expected return of market portfolio is 16%. Find out the expected returns of the securities with a beta of (a) 1.25 (b) .8 and (c) 1? Q. 3. Current dividend per sha ...?" |
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Answer» isk free return is at 5% and expected return of market portfolio is 16%. To find: The expected returns of the securities with a beta of (a) 1.25 (B) .8 and (c) 1Formula to be USED:E(R) = Risk free return + beta (ER of market portfolio - Risk free return)CALCULATION:(a) The expected returns of the securities with a beta of 1.25:E(R) = 5% + 1.25(16%-5%) = 5% + 1.25 * 11% = 5% + 13.75% = 18.75%The expected returns of the securities with a beta of 1.25 is 18.75 %(b) The expected returns of the securities with a beta of 0.8:E(R) = 5% + 0.8(16%-5%) = 5% + 0.8 * 11% = 5% + 8.8% = 13.8%The expected returns of the securities with a beta of 0.8 is 13.8 %(c) The expected returns of the securities with a beta of 1:E(R) = 5% + 1 (16%-5%) = 5% + 1* 11% = 5% + 11% = 16%The expected returns of the securities with a beta of 1 is 16 % |
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