Using Solnik's (1974)ICAPM,what is the expected return on an Australian security with a world market beta of 0.78 if the Australian risk-free rate is 5.37%,the world risk-free rate is 1.7% and the expected return on the world market portfolio is 13.19%?

A) $ 7.80 \% $
B) $ 10.66 \% $
C) $ 11.47 \% $
D) $ 14.33 \% $

Question

Using Solnik's (1974)ICAPM,what is the expected return on an Australian security with a world market beta of 0.78 if the Australian risk-free rate is 5.37%,the world risk-free rate is 1.7% and the expected return on the world market portfolio is 13.19%?

A) $ 7.80 \% $
B) $ 10.66 \% $
C) $ 11.47 \% $
D) $ 14.33 \% $

Quizplus · Accepted Answer

Using equation 9.10,we can calculate the expected return on an Australian security in the following way: E(R_i)= 0.0537 + 0.78(0.1319 - 0.017)= 0.1433 or 14.33%.

Using Solnik's (1974)ICAPM,what Is the Expected Return on an Australian 7.80% 7.80 \% 7.80%

Using Solnik's (1974)ICAPM,what Is the Expected Return on an Australian $7.80 \%$