Question

farm tractors, inc., stock has a beta of 1.12 and an expected return of 12.8%. the risk-free rate is 3.84%. what is the market rate of return if capm holds?

Answer 1

The market rate of return is 11.84 percent

What is CAPM?

The Capital Asset Pricing Model (CAPM) describes the relationship between expected return and risk of investing in securities (CAPM). This shows that the expected return on a security is the same as the risk-free return plus a risk premium, which is defined by the asset's beta.

CAPM formula:

Ra = Rf + Be x (Rm – Rf)

Ra = Expected dividend from investment = 12.8

Rf = Risk-free rate = 3.84

Be = Beta factor of the underlying transaction = 1.12

(Rm – Rf) = Current market risk premium

12.8 = 3.84 + 1.12((Rm) - 3.84)

12.8 = 4.96 ((Rm) - 3.84)

12.8 = 1.12 (Rm)

(Rm) = 12.8/1.12

Rm = 11.84 percent

To know more about CAPM visit:                                                 brainly.com/question/28388447                                    

#SPJ4