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Elena L [17]
1 year ago
11

Based on the Capital Asset Pricing Model assuming the securities are correctly priced and given the following information, what

is the return on the market?
Security Beta Expected Return
Katmai Outfitters 0.74 0.087
Wrangell Adventures 1.63 0.159
Business
1 answer:
Savatey [412]1 year ago
5 0

Th return on the market is 0.08.

<h3>What is the return on the market?</h3>

According to the capital asset pricing model, the expected return of an asset is a function of the risk free rate, beta and return on the market.

Expected return = risk free rate + (beta x return on the market)

0.087 = a + 0.74b

0.159 = a + 1.63b

Where:

a = risk free rate

b = return on the market

Subtract equation 1 from equation 2

0.072 = 0.89b

b = 0.072 / 0.89

b = 0.08

To learn more about beta, please check: brainly.com/question/17007831

#SPJ1

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Answer:

b. 9.75%

Explanation:

When a partner invests in a business, he/she expects to get return on his equity in the business. The major reason for this is to compare his/her return in the partnership business with the return he/she could get elsewhere.

The return on partner equity is calculated by dividing his/her net income from the partnership business by his/her average capital for the period.

The formula is given below:

<u> Net income       </u>  x 100

Average capital

Average capital  = <u>Opening capital balance + Closing capital balance</u>

                                                                    2

For Carter Pearson, the average capital is =<u> $55,500 + $62,500</u>

                                                                                   2

= $59,000

The return on equity will be: <u>$5,750  </u> x 100

                                                $59,000

= 9.7457

= 9.75%   - approximate to two decimal point.

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