Answer:
c.An index fund with beta = 1.0 should have a required return of 11%
CORRECT We calcualte and obtain the proposed answer.
[tex]Ke= 0.06 + 1(0.05)[/tex]
Ke = 0.11
Explanation:
we analize considering the CAMP formula:
[tex]Ke= r_f + \beta (r_m-r_f)[/tex]
risk free
market rate
premium market: market rate - risk free
beta(non diversifiable risk)
a. If a stock has a negative beta, its required return must also be negative
b. If a stock's beta doubles, its required return must also double.
FALSE
It will increase by beta times risk premium
[tex]r_f + 2 \beta (r_m-r_f) - r_f + \beta (r_m-r_f)[/tex]
[tex]r_f - r_f + 2 \beta (r_m-r_f) - \beta (r_m-r_f)[/tex]
[tex] \beta (r_m-r_f)[/tex]
d. An idex fund with beta = 1.0 should have a required return greater than 11%
FALSE we calcualte for beta of 1 and obtain 11%
e. An index fund with beta = 1.0 should have a required return less than 11%
FALSE we calcualte for beta of 1 and obtain 11%
