Question

callen is a young dpt and invests in the bourgeois tech fund that has a beta of 2.0. if the expected market return is 11% and the risk free rate of return is 4% what return should callen most likely expect from the fund?

Answer 1

Using the Capital Asset Pricing Model, Callen can most likely expect an 18% return from the Bourgeois Tech Fund, with a beta of 2.0, an expected market return of 11%, and a risk-free rate of 4%.

Step-by-step explanation:

The student has asked what return Callen should most likely expect from the Bourgeois Tech Fund with a beta of 2.0, given an expected market return of 11% and a risk-free rate of return of 4%. To answer this, we use the Capital Asset Pricing Model (CAPM), which helps to determine the expected return of an asset based on its risk relative to the market. The formula for CAPM is:

Expected Return = Risk-Free Rate + Beta * (Market Return - Risk-Free Rate)

Plugging in the given values:

Expected Return = 4% + 2.0 * (11% - 4%)

The calculation gives us:

Expected Return = 4% + 2.0 * 7%

Expected Return = 4% + 14%

Expected Return = 18%

Therefore, Callen can most likely expect an 18% return from the investment in the Bourgeois Tech Fund.