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yan [13]
4 years ago
10

The risk-free rate is 4.2%, and the expected return on the market is 10%. A publicly-traded bond promises to return 8%. The expe

cted return on the bond investment is 5.5%. What is the bond's implied beta?
a) 0.45
b) 0.22
c) 0.73
d) 1.38
Business
1 answer:
AnnZ [28]4 years ago
6 0

Answer: the bond's implied beta= 0.22-b

Explanation:

According to Capital Asset Pricing Model CAPM, we have that  

Expected return =Rf + β(Rm - Rf)

Rm is expected return on market

β= beta of bond

Rf=risk free return

therefore

Expected return =Rf + β(Rm - Rf)

5.5 = 4.2 +  β(10-4.2)

5.5=4.2+ β5.8

5.5-4.2= β5.8

1.3=β5.8

β= 1.3/5.8=0.22

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Answer:

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Number of Workers         0     1      2      3        4       5

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Total revenue                   0   60  90   120    150    160

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