Answer:
Beta = 1.009
Explanation:
The capital asset pricing model is a risk-based model for estimating the return on a stock.. Here, the return on equity is dependent on the level of reaction of the the equity to changes in the return on a market portfolio. These changes are captured as systematic risk. Systematic risks are those which affect all economic actors in the market, they include factors like changes in interest rate, inflation, etc. The magnitude by which a stock is affected by systematic risk is measured by beta.
Under CAPM,
E(r)= Rf + β(Rm-Rf)
E(r)- expected return, Rf-risk-free rate , β= Beta, Rm= Return on market.
Using this model, we can work out the value of beta as follows:
Ke= 14.7%., Rf- 3.8%, Rm = 10.8%
14.7 = 3.8 + (β× 10.8)
14.7 = 3.8 + 10.8β
14.7- 3.8 = 10.8β
divide both sides by 10.8
(14.7-3.8)/10.8 =β
1.009 = β
Beta = 1.009
Answer:
β = 1.56
Explanation:
The CAPM model is appropriate to use on the basis of systematic risk of stock returns as it is a measure of this risk
The Capital Asset Pricing Model
ER = rf + β (rm - rf)
Given
rf = 3.8%
rm = 10.8%
ER = 14.7%
put the values in formula and solve
14.7 = 3.8% + β (10.8-3.8)
14.7- 3.8 =β(7)
10.9 =β(7) divide by 7 on both sides of the equation
β = 10.9/7 =1.5571/1.56
