Given the capital asset pricing model,a security with a beta of 1.5 should return ________,if the risk-free rate is 6% and the market return is 11%.
A)13.5%
B)14.0%
C)14.5%
D)15.0%

Question

Quizplus · Accepted Answer

The correct answer is A.The Capital Asset Pricing Model (CAPM) is a model that describes the relationship between the expected return of a security and its risk. The CAPM states that the expected return of a security is equal to the risk-free rate plus a risk premium. The risk premium is determined by the security's beta, which is a measure of the security's risk relative to the market.In this case, the security has a beta of 1.5, the risk-free rate is 6%, and the market return is 11%. Therefore, the expected return of the security is:Expected return = Risk-free rate + Beta * (Market return - Risk-free rate)Expected return = 6% + 1.5 * (11% - 6%)Expected return = 6% + 1.5 * 5%Expected return = 13.5%

Given the Capital Asset Pricing Model,a Security with a Beta