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Assume these securities are correctly priced. Based on the CAPM, what is the return on the market?

Assuming that these securities are correctly priced, what is the expected return on the market according to the Capital Asset Pricing Model (CAPM)?

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Anonymous

Jan 26, 2025

10.35%Explanation: The Capital Asset Pricing Model is used to calculate the expected return of a security with the expressionExpected return = Risk free rate + Beta ( Market return - risk free rate) ( Market return - risk free rate) is also known as the market premium and can be calculated by;= = = 0.0153/0.24= 6.375%= 6.38%Expected return A = Risk free rate + Beta A ( Market return - risk free rate) 0.1137 = Risk free rate + 1.16 (6.38%)Risk free rate = 0.1137 - 1.16(6.38%)Risk free rate = 3.97%Market Expected return = Market Risk Premium + risk free rate = 6.38% + 3.97%= 10.35%
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