On chapter 20 FM practice questions, how do you get 5% x beta = 6% when you are trying to work out the beta?
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CAPM beta of shares
5y ago#1I am guessing that you are referring to Q3 (but please do say which question in future!!).
5% is the equity risk premium (which is the market return less the risk free rate - the market return is therefore 9%).
So using the normal CAPM formula, 10% = 4% + (beta x 5%)
Therefore 6 = 5 x Beta
Beta = 6/5 = 1.2
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