Module 4 Homework Assignment Score 600 Save Submit Assignmen

Module 4 Homework Assignment Score: 60.0 Save Submit Assignment for Grading Problem 8.08 s Question 6 of 20 Check My Work (No more tries available Click here to read the eBook: The Relationship Between Risk and Rates of Return BETA COEFFICIENT Given the following information, determine the beta coefficient for Stock L that is consistent with equilibrium: f. 12.5%; rRF 6.396; rM-13%. Round your answer to two decimal places. 93

Solution

According to CAPM equation,

r_L = r_RF + Beta ( r_M - r_RF )

12.5% = 6.3% + Beta (13% - 6.3%)

12.5% - 6.3% = Beta ( 6.7% )

6.2% / 6.7% = Beta

Beta = 0.93