question archive Suppose that a risky asset with a beta of 1,5 is offering a return of 20%
Subject:AccountingPrice:2.84 Bought3
Suppose that a risky asset with a beta of 1,5 is offering a return of 20%. Risk-free rate is 2% and market risk is 14%. Is the asset fairly priced in the market?
Answer:- The option 'a-Yes, it is fairly priced' is correct. Because Return is equal to Required return. And other option are incorrect.
Required return Formula =Risk free rate+Beta*(Market rate-Risk free rate)
=2+1.5*(14-2)
=20%