If the All-Ordinaries has a beta with respect to the world market of 1.2,and the world market return and risk-free rate are 12% and 6% respectively,then the expected return predicted by the ICAPM for Australia is:

A) $ 8.8 \% $
B) $ 10.6 \% $
C) $ 12.8 \% $
D) $ 13.2 \% $

Question

If the All-Ordinaries has a beta with respect to the world market of 1.2,and the world market return and risk-free rate are 12% and 6% respectively,then the expected return predicted by the ICAPM for Australia is:

A) $ 8.8 \% $
B) $ 10.6 \% $
C) $ 12.8 \% $
D) $ 13.2 \% $

Quizplus · Accepted Answer

Using equation 9.10,we can compute the expected return for Australia as follows,0.06 + 1.2 (0.12 - 0.06)= 0.132 or 13.2%.

If the All-Ordinaries Has a Beta with Respect to the World