AuthorTopic: CAPM pricing question
PattyC
@2016-01-12 19:52:02
Hello, was wondering if someone could help me out. In volume 4 reading 51 practice problems - #8

I know the CAPM model to be this-
E(Ri)=RFr + B(Rm - RFr)

So, for the expected return for Stock A, I am getting E(Ra) = 4% + 0.9(8%-4%)
= 7.6%

the answer key shows E(Ra)= 11.2%

I'm guessing the book isn't wrong, anyone with any suggestions what I am doing wrong??

Thanks
zhouerz
@2016-01-13 23:19:45
Where's the rest of the problem? We can't help you unless you give us the inputs and descriptors..
touchou
@2016-02-12 08:47:29
you should have 4+(0.9*8)
the 8% in the problem is Rm-Rf.
you have to pay a lot of attention to terminology, you can t afford loosing point with that.
good luck.

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