Sarah owns a portfolio of stocks that have a market value of 50,000 and a estimated CAPM beta of .90. If the market risk premium is 9% and the risk free rate is 6%, what is the expected equilibrium return on this portfolio
Sarah owns a portfolio of stocks that have a market value of 50,000 and a estimated CAPM beta of .90. If the market risk premium is 9% and the risk free rate is 6%, what is the expected equilibrium return on this portfolio.
CAPM =Capital Asset Pricing Model.
Since the market risk premium is already given as 9% and the CAPM beta of .90, then it follows that the expected equilibrium return =.90 x 9% =0.081 + Risk free rate of 6% =14.1%.
