Find the beta for an asset with a required return

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Reference no: EM132671972

Questions -

Q1) Suppose you are offered two investments with the following expected cash flows:

Economic Scenario	Probability of Economic Scenario	Outcome for Investment 1	Outcome for Investment 2
Boom	20%	$1,000	$1,200
Normal	50%	750	750
Bust	30%	250	117

a. Calculate the expected value of each investment.

b. Calculate the standard deviation for each investment's possible outcomes.

c. Which investment is riskier? Explain.

Q2) Use the basic equation for the capital asset pricing model (CAPM) to work each of the following situations.

a. Find the required return for an asset with a beta of 2.2 when the risk-free rate and market return are 5% and 32%, respectively.

b. Find the risk-free rate for a firm with a required return of 23.75% and a beta of 1.25 when the market return is 20%.

c. Find the market return for an asset with a required return of 18% and a beta of 1.2 when the risk-free rate is 8%.

d. Find the beta for an asset with a required return of 15% when the risk-free rate and market return are 3% and 15%, respectively.

Reference no: EM132671972

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