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2010-02-22 150849 Risky Stock
2010-02-22 150849 Risky Stock
return of 15% and a standard deviation of 18%. The risk free rate is 5%, an the expected
return on the market portfolio is 14%. Assume the capital asset pricing model holds.
What expected rate of return would a security earn if it had a .5 correlation with the
market portfolio and a standard deviation of 40%?
So as per CAPM
Expected Return on Security = Risk Free Rate + Beta*(Market Return – Risk Free
Return)