Your estimate of the market risk premium is 9%. The risk-free rate of return is 4% and General Electric has a beta of 0.7. Accor ding to the CAPM, what is its expected return?
1 answer:
Answer:
Expected rate of return is 10.3%
Step-by-step explanation:
CAPM calculate the expected return by using the risk free rate market premium and beta of investment. It helps to decided the additional investment in a well diversified portfolio.
Formula of CAPM to calculate the rate of return
Rate of Return = Risk free rate + beta ( Risk premium )
Rate of Return = 4% + 0.7 ( 9% )
Rate of Return = 4% + 0.7 ( 9% )
Rate of Return = 10.3%
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