Problem 11-15 Using CAPM [LO 4] What must the expected return on the market be?

Question

Problem 11-15 Using CAPM [LO 4]

What must the expected return on the market be? (Do not round intermediate calculations. Enter your answer as a percentage rounded to 2 decimal places (e.g., 32.16).)

Problem 11-16 Using CAPM [LO 4]

A stock has an expected return of 13.8 percent and a beta of 1.19, and the expected return on the market is 12.8 percent.

What must the risk-free rate be? (Do not round intermediate calculations. Enter your answer as a percentage rounded to 2 decimal places (e.g., 32.16).)

%

Explanation / Answer

E(r) of the portfolio = (0.50)0.0645 + (0.50)1.01 = 0.53725, or 53.72% rounded

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