Calculate the required rate of return for an asset that has a beta of 1.73 , given a risk-free rate of 5.3 % and a market return of 9.9 %. b. If investors have become more risk-averse due to recent geopolitical events, and the market return rises to 12.7 %, what is the required rate of return for the same asset?

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Business

Randolph

21 July, 22:48

Calculate the required rate of return for an asset that has a beta of 1.73 , given a risk-free rate of 5.3 % and a market return of 9.9 %. b. If investors have become more risk-averse due to recent geopolitical events, and the market return rises to 12.7 %, what is the required rate of return for the same asset?

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Scott Ferguson · Answer 1

(a) 13,3%

(b) 18,1%

Explanation:

To calculate the required rate of return for an assets it's necessary to use the CAPM (Capital Asset Pricing Model) model which considers these variables to estimate the required return of an assets, the model states the next:

ER = Rf + Bix (ERm - Rf)

ER : Expected Return of Investment

Rf : Risk-Free Rate

Bi : Beta of the Investment

ERm : Expected Return of the Market

(Erm-Rf) : Market Risk Premium

It tries to explain the relationship between the systematic risk ((Erm-Rf Market Risk Premium) of the market and the expected returns for assets.