The rate on six-month T-bills is currently 5%. Andvark Company stock has a beta of 1.69 and a required rate of return of 15.4%. According to CAPM, determine the return on the market portfolio.
A) 11.15%
B) 6.15%
C) 17.07%
D) 14.11%

Question

Quizplus · Accepted Answer

The Capital Asset Pricing Model (CAPM) formula is: Required Return = Risk-Free Rate + Beta * (Market Return - Risk-Free Rate). Plugging in the given values: 15.4% = 5% + 1.69 * (Market Return - 5%). Solving for Market Return gives approximately 11.15%.

The Rate on Six-Month T-Bills Is Currently 5