Reading 53: Portfolio Risk and Return: Part II-LOS g 习题精选 2011, interpret, expected, return, center

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Session 12: Portfolio Management
Reading 53: Portfolio Risk and Return: Part II

LOS g: Calculate and interpret the expected return of an asset using the CAPM.

 

 

The beta of stock D is -0.5. If the expected return of Stock D is 8%, and the risk-free rate of return is 5%, what is the expected return of the market?

A) +3.0%.

B) -1.0%.

C) +3.5%.

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RR_Stock = R_f + (R_Market ? R_f) × Beta_Stock, where RR = required return, R = return, and R_f = risk-free rate

A bit of algebraic manipulation results in:

R_Market = [RR_Stock ? R_f ? (Beta_Stock × R_f)] / Beta_Stock = [8 ? 5 ? (-0.5 × 5)] / -0.5 = 0.5 / -0.5 = -1%

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Given a beta of 1.25 and a risk-free rate of 6%, what is the expected rate of return assuming a 12% market return?

A) 10%.

B) 13.5%.

C) 31%.

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k = 6 + 1.25 (12 ? 6)

= 6 + 1.25(6)

= 6 + 7.5

= 13.5

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The expected market premium is 8%, with the risk-free rate at 7%. What is the expected rate of return on a stock with a beta of 1.3?

A) 16.3%.

B) 10.4%.

C) 17.4%.

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RR_Stock = R_f + (R_Market ? R_f) × Beta_Stock, where RR = required return, R = return, and R_f = risk-free rate, and (R_Market ? R_f) = market premium
Here, RR_Stock = 7 + (8 × 1.3) = 7 + 10.4 = 17.4%.

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If the risk-free rate of return is 3.5%, the expected market return is 9.5%, and the beta of a stock is 1.3, what is the required return on the stock?

A) 7.8%.

B) 11.3%.

C) 12.4%.

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The formula for the required return is: ER_stock = R_f + (E_RM – R_f) × Beta_stock,
or 0.035 + (0.095 – 0.035) × 1.3 = 0.113, or 11.3%.

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Given a beta of 1.10 and a risk-free rate of 5%, what is the expected rate of return assuming a 10% market return?

A) 15.5%.

B) 5.5%.

C) 10.5%.

---

k = 5 + 1.10 (10 - 5) = 10.5

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What is the required rate of return for a stock with a beta of 1.2, when the risk-free rate is 6% and the market is offering 12%?

A) 7.2%.

B) 6.0%.

C) 13.2%.

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RR_Stock = R_f + (R_Market - R_f) × Beta_Stock, where RR= required return, R = return, and R_f = risk-free rate. 

Here, RR_Stock = 6 + (12 - 6) × 1.2 = 6 + 7.2 = 13.2%.

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The beta of Stock A is 1.3. If the expected return of the market is 12%, and the risk-free rate of return is 6%, what is the expected return of Stock A?

A) 13.8%.

B) 14.2%.

C) 15.6%.

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RR_Stock = R_f + (R_Market - R_f) × Beta_Stock, where RR= required return, R = return, and R_f = risk-free rate

Here, RR_Stock = 6 + (12 - 6) × 1.3  = 6 + 7.8 = 13.8%.

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What is the expected rate of return on a stock that has a beta of 1.4 if the market risk premium is 9% and the risk-free rate is 4%?

A) 16.6%.

B) 13.0%.

C) 11.0%.

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Using the security market line (SML) equation:

4% + 1.4(9%) = 16.6%.

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Given the following information, what is the required rate of return on Bin Co?

• inflation premium = 3%
• real risk-free rate = 2%
• Bin Co. beta = 1.3
• market risk premium = 4%

A) 7.6%.

B) 16.7%.

C) 10.2%.

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Use the capital asset pricing model (CAPM) to find the required rate of return. The approximate risk-free rate of interest is 5% (2% real risk-free rate + 3% inflation premium).

k = 5% + 1.3(4%) = 10.2%.

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Given a beta of 1.55 and a risk-ree rate of 8%, what is the expected rate of return, assuming a 14% market return?

A) 12.4%.

B) 17.3%.

C) 20.4%.

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k = 8 + 1.55(14-8)
= 8 + 1.55(6)
= 8 + 9.3
= 17.3