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Beta coefficients and the capital asset pricing model Personal Finance Problem Katherine Wilson is wondering how much risk she must undertake to generate an acceptable return on her porfolio. The​ risk-free return currently is 4​%. The return on the overall stock market is 14​%. Use the CAPM to calculate how high the beta coefficient of​ Katherine's portfolio would have to be to achieve a portfolio return of 16​%.

Respuesta :

Answer:

Beta = 1.2

Explanation:

Given:

The​ risk-free return = 4​%

The return on the overall stock market = 14​%

The portfolio return to be achieved = 16%

Now,

from capital asset pricing model,

Expected return = Risk-free return + Beta (Market Return - Risk-free return)

on substituting the respective values, we get

16% = 4% + Beta × ( 14% - 4% )

or

12% = Beta × ( 10% )

or

Beta = 1.2