Beta required required rate of rate return return 12

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Unformatted text preview: ate return return 12% . security market line line (SML) (SML) 1 Beta Risk-free rate of return (6%) This linear relationship between risk and required return is known as the Capital Asset Pricing Model (CAPM). Pricing Required Required rate of rate return return SML . 12% Risk-free rate of return (6%) 0 1 Beta Required Required rate of rate return return Is there a riskless (zero beta) security? SML . 12% Risk-free rate of return (6%) 0 1 Beta Required Required rate of rate return return Is there a riskless (zero beta) security? . 12% Risk-free Risk-free rate of return (6%) 0 1 SML Treasury securities are as close to riskless as possible. as Beta Required Required rate of rate return return Where does the S&P 500 fall on the SML? SML . 12% Risk-free rate of return (6%) 0 1 Beta Required Required rate of rate return return Where does the S&P 500 fall on the SML? . 12% Risk-free rate of return (6%) 0 1 SML The S&P 500 is a good good approximation approximation for the market Beta Required Required rate of rate return return SML Utility Stocks 12% . Risk-free rate of return (6%) 0 1 Beta Tech stocks Required Required rate of rate return return SML . 12% Risk-free rate of return (6%) 0 1 Beta The CAPM equation: The The CAPM equation: kj = krf + β j (km - krrff ) The CAPM equation: kj = krf + β j (km - krrff ) where: where: kj...
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This note was uploaded on 01/17/2014 for the course GEB 3375 taught by Professor Sweo during the Winter '08 term at University of Central Florida.

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