Question

The expected return on the market portfolio is 19%. The risk-free rate is 10%. The expected return on SDA Corp. common stock is 18%. The beta of SDA Corp. common stock is 1.70. Within the context of the capital asset pricing model, _________. rev: 10_23_2013_QC_37809

Answer 1

-0.073

Step-by-step explanation:

Calculation for the context of the capital asset pricing model

Using this formula

Capital asset pricing model=Expected return o Common stock-[Risk-free rate+ Beta of common stock (Market portfolio-Risk-free rate)]

Let plug in the formula

Capital asset pricing model=0.18 - [0.10 + 1.70(0.19 - 0.10)]

Capital asset pricing model =0.18 - [0.10 + 1.70(0.09)]

Capital asset pricing model=0.18 - (0.10 + 0.153)

Capital asset pricing model =0.18 - 0.253

Capital asset pricing model=-0.073

Therefore the context of the capital asset pricing model will be -0.073