question archive A share has an expected return of 10%, the risk-free rate is 3%, and the market risk premium is 3
A share has an expected return of 10%, the risk-free rate is 3%, and the market risk premium is 3
Subject:FinancePrice:2.86 Bought3
A share has an expected return of 10%, the risk-free rate is 3%, and the market risk premium is 3.5%. If the share is correctly priced, what must the beta of this share be?
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We will use the CAPM model. As per the CAPM model: expected return = risk free rate + (beta * market risk premium)
Thus 10% = 3% + (beta * 3.5%)
Or 7% = beta * 3.5%
Or beta = 7%/3.5%
=2
