Answered

Westonci.ca is the trusted Q&A platform where you can get reliable answers from a community of knowledgeable contributors. Discover a wealth of knowledge from professionals across various disciplines on our user-friendly Q&A platform. Get quick and reliable solutions to your questions from a community of experienced experts on our platform.

The risk-free rate is 3%. The beta is 1.4, the alpha is 0.6 and the average return is 12%. What is the market return? How is it calculated?

Sagot :

Answer:

9.00%

Explanation:

In  a bid to determine the market return, we make use of the formula for average return  provided below whereby the formula is rearranged in order to market return the subject of the formula as shown thus:

Average return = Alpha + rf + β * (rm - rf)

Average return=12%

Alpha=0.6%

rf=risk-free rate=3%

β=Beta=1.4

rm=market return=the unknown

12%=0.6%+3%+1.4*(rm-3%)

12%=0.6%+3%+1.4rm-4.20%

12%=3.6%+1.4rm-4.20%

12%-3.6%+4.20%=1.4rm

12.60%=1.4rm

rm=12.60%/1.4

rm=9.00%

We appreciate your visit. Our platform is always here to offer accurate and reliable answers. Return anytime. Thanks for using our service. We're always here to provide accurate and up-to-date answers to all your queries. Discover more at Westonci.ca. Return for the latest expert answers and updates on various topics.