the risk-free rate is 6% and the expected rate of return on the market portfolio is 10%. calculate the required rate of return on a security with a beta of 1.24. note: do not round intermediate calculations. enter your answer as a percent rounded to 2 decimal places. if the security is expected to return 16%, is it overpriced or underpriced?

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21-10-2022
Business

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the risk-free rate is 6% and the expected rate of return on the market portfolio is 10%. calculate the required rate of return on a security with a beta of 1.24. note: do not round intermediate calculations. enter your answer as a percent rounded to 2 decimal places. if the security is expected to return 16%, is it overpriced or underpriced?

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sapanpandit sapanpandit · Answer 1 · 2022-10-25T01:13:30-04:00

If the expected rate of return on the market portfolio is 10% and the risk-free rate is 6%, a security with a beta of 1.24 must return 10.96%.

The profit or loss on an investment over time is known as a rate of return. In other terms, the rate of return is the increase in value relative to the cost of the initial investment, usually given as a percentage. When market portfolio the ROR is positive, the investment is said to have made a profit, and when it is negative, it has suffered a loss.

the security's required return is equal to 6% plus 1.24*(10 - 6%) the security's required return is equal to 10.96%

If the expected return is 16%, the asset is underpriced.

The rate of return is used to calculate the overall profit or loss on an market portfolio investment. The RoR statistic can be used to a wide range of assets, including bonds, real estate, fine art, and stocks.

Learn more about rate of return here

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