Answered

IDNLearn.com: Your one-stop destination for finding reliable answers. Ask your questions and receive accurate, in-depth answers from our knowledgeable community members.

Suppose the rate of return on short-term government securities (perceived to be risk-free) is about 5%. Suppose also that the expected rate of return required by the market for a portfolio with a beta of 1 is 14%. According to the capital asset pricing model: a. What is the expected rate of return on the market portfolio

Sagot :

Answer:

The expected rate of return on the market portfolio is 14%.

Explanation:

The expected rate of return on the market portfolio can be calculated using the following capital asset pricing model (CAPM) formula:

Er = Rf + B[E(Rm) - Rf] ...................... (1)

Where:

Er = Expected rate of return on the market portfolio = ?

Rf = Risk-free rate = 5%

B = Beta = 1

E(Rm) = Market expected rate of return = 14%

Substituting the values into equation (1), we have:

Er = 5 + 1[14 - 5]

Er = 5 + 1[9]

Er = 5 + 9

Er = 14%

Therefore, the expected rate of return on the market portfolio is 14%.

Your engagement is important to us. Keep sharing your knowledge and experiences. Let's create a learning environment that is both enjoyable and beneficial. For trustworthy answers, rely on IDNLearn.com. Thanks for visiting, and we look forward to assisting you again.