Answer:
return = 20.81%
Explanation:
Capital Asset Pricing Model:
The capital asset pricing model (CAPM) is used to calculate the required rate of return for any risky asset.
Formula:
return = risk free + ( beta * ( market return-risk free ) )
where
beta is the standard deviation of the capital market line
Formula for standard deviation:
The standard deviation of the capital market line = x * standard deviation of market return
As Wal-Mart has an expected return of 14% and a volatility of 23%. The market portfolio has an expected return of 12% and a volatility of 16%.
Therefore by putting the values in the above formula, we get
0.23 = x * 0.16
x = 1.4375
As the risk-free rate is 5% and the market portfolio has an expected return of 12%
x = 5% + ( 1.4375 * ( 12% - 5% ) )
x = 20.81%
so return = 20.81%
Answer: Expectancy-Outcome Values Theory
Explanation:
The Expectancy-Outcome Values Theory is one that is quite popular in many fields ranging from health to economics as it aims to explain that human behavior is governed by expectations of events.
Under the Expectancy-Outcome Values Theory, people will evaluate the cost, benefit, or value related to making a change in a particular attitude, value, belief, or behavior to decide if it is worthwhile or not.
For most if not all decisions taken therefore, there goes into it quite a lot of mental calculations involving the effects of an event before a decision is made.
Answer:
7.6%
Explanation:
In this question, we apply the Capital Asset Pricing Model (CAPM) formula which is shown below
Expected rate of return = Risk-free rate of return + Global Beta × (Global Market rate of return - Risk-free rate of return)
= 4% + 0.90 × (8% - 4%)
= 4% + 0.90 × 4%
= 4% + 3.6%
= 7.6%
The (Global Market rate of return - Risk-free rate of return) is also called global market risk premium