Question

Beta Computation Question - Please See the attachment

Answer 1

a) 2
b) 12.5

Use the Security market line(SML)formula.
http://en.wikipedia.org/wiki/Security_market_line

Answer 2

can you show me how did you get the final answers please ?

Answer 3

I used the Security Market Line equation.
E(Rb) = Rf + beta * [E(Rm)-Rf]
E(Rb) is the expected return on stock b
Rf- Risk free rate
E(Rm)- Expected Market return
[E(Rm)- Rf] is also called market risk premium

Just use algebra to get the value of the unknown from the equation

Answer 4

Thank you!