Portfolio Analysis in Stock Market
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Questions and Answers

What is the risk-free rate of return used in the CAPM model?

  • 4.6%
  • 4.3%
  • The risk-free rate is not explicitly mentioned
  • There is only one risk-free rate (correct)

    • What is the market risk premium if the risk-free rate is 5% and the market return is 13%?

  • 5%
  • 8% (correct)
  • 18%
  • 13%

    • If an investor invests 70% in the market and 30% in Treasury bills, what is the portfolio beta?

  • 0.3 (correct)
  • 1.0
  • 0.0
  • 0.7

    • If the risk-free rate is 5% and the market risk premium is 8%, what is the required return for an investment with a beta of 0.7?

    <p>10.6%</p> Signup and view all the answers

    What needs to be factored in when judging the value of beta and computing the required rate of return?

    <p>Both dividend payments and capital appreciation</p> Signup and view all the answers

    In the given example, what is the expected rate of return for equity shareholders of Pearl Ltd. according to the Moderate Approach?

    <p>15.5%</p> Signup and view all the answers

    If the market return is 12% and Pearl Ltd. expects a return of 15.5%, what is the implied risk premium?

    <p>3.5%</p> Signup and view all the answers

    What is the purpose of the Capital Asset Pricing Model (CAPM)?

    <p>To estimate the required rate of return for an investment</p> Signup and view all the answers

    If an investment has a beta of 0, what is its required rate of return according to the CAPM?

    <p>The risk-free rate</p> Signup and view all the answers

    What is the relationship between beta and systematic risk in the CAPM?

    <p>Beta measures systematic risk</p> Signup and view all the answers

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