Question

if the expected return on the market portfolio is estimated to be 17%, the risk-free rate of interest is 8%, and the beta of asset i is 0.60, what is the expected return on asset i using capm model?

Answer 1

Using the Capital Asset Pricing Model (CAPM), the expected return on asset i with a beta of 0.60 when the expected market return is 17% and the risk-free rate is 8% would be 13.4%.

Step-by-step explanation:

If the expected return on the market portfolio is estimated to be 17%, the risk-free rate of interest is 8%, and the beta of asset i is 0.60, the expected return on asset i using the CAPM model can be calculated using the CAPM equation: Expected Return = Risk-Free Rate + Beta * (Market Return - Risk-Free Rate).

Plugging in the numbers provided:

Expected Return of Asset i = 8% + 0.60 * (17% - 8%)

Expected Return of Asset i = 8% + 0.60 * 9%

Expected Return of Asset i = 8% + 5.4%

Expected Return of Asset i = 13.4%

Therefore, using the CAPM model, the expected return on asset i is 13.4%.