Exam 9: Asset Pricing Principles

The market has an expected return of 13 percent and the risk-free rate is 5.5 percent. If Merrill Lynch has a beta of 1.85, what is the required return for Merrill Lynch?

Securities with betas greater than l should have:

The expected return for the market is 12 percent, with a standard deviation of 20 percent. The expected risk-free rate is 8 percent. Information is available for three mutual funds, all assumed to be efficient, as follows: 1 0.8 12 2 1.2 13 3 0.6 11 (a) Based on the CML, calculate the market price of risk. (b) Calculate the expected return on each of these portfolios.

Which of the following is an assumption of the CMT?

Beta is a measure of systematic risk and relates one security's return to another security's return.