14% average, so some years you will get 7% and other years you will get 21% and everywhere in between, but over 10-15 years you will more than likely average 14%. Day tading is never a good idea, always buy stock for the long haul. Also spread your assets, put them in multiple companies, for example if you shop at Walmart, eat mcDonalds, and use H & R Block for your taxes those are three good places to invest. This can be done for anywhere you spend money regularly.
Expected return= risk free rate + Risk premium = 11 rate of return on stock= Riskfree rate + beta x( expected market return- risk free rate)
expected rate of return
From Investopedia.com: The capital market line (CML) is a line used in the capital asset pricing model to illustrate the rates of return for efficient portfolios depending on the risk-free rate of return and the level of risk (standard deviation) for a particular portfolio. The CML is derived by drawing a tangent line from the intercept point on the efficient frontier to the point where the expected return equals the risk-free rate of return. The CML is considered to be superior to the efficient frontier since it takes into account the inclusion of a risk-free asset in the portfolio. The capital asset pricing model (CAPM) demonstrates that the market portfolio is essentially the efficient frontier. This is achieved visually through the security market line (SML). The security market line is a line that graphs the systematic, or market, risk versus return of the whole market at a certain time and shows all risky marketable securities. The SML essentially graphs the results from the capital asset pricing model (CAPM) formula. The x-axis represents the risk (beta), and the y-axis represents the expected return. The market risk premium is determined from the slope of the SML. The security market line is a useful tool in determining whether an asset being considered for a portfolio offers a reasonable expected return for risk. Individual securities are plotted on the SML graph. If the security's risk versus expected return is plotted above the SML, it is undervalued because the investor can expect a greater return for the inherent risk. A security plotted below the SML is overvalued because the investor would be accepting less return for the amount of risk assumed.
CAPM equation E(Rj) = rf + b[E(Rm) - rf] 0.14 = rf + 1.5(0.12-rf) 0.14 = rf + 0.18 - 1.5rf -0.04 = rf - 1.5rf -0.04 = (1-1.5)rf -0.04 = -0.5rf rf = 0.08 rf = 8%
.14=.05+1.5(market return-.05) .09=1.5market return-.075 .165/1.5=market return .11 or 11%=market return
Expected return= risk free rate + Risk premium = 11 rate of return on stock= Riskfree rate + beta x( expected market return- risk free rate)
11.84%
The market risk premium is measured by the market return less risk-free rate. You can calculate the market risk premium as market risk premium is equal to the expected return of the market minus the risk-free rate.
14
The expected rate of return is simply the average rate of return. The standard deviation does not directly affect the expected rate of return, only the reliability of that estimate.
expected rate of return
expected market return = risk free + beta*(market return - risk free) So by putting in values: 20.4 = rf+ 1.6(15-rf) expected market return = risk free + beta*(market return - risk free) So by putting in values: 20.4 = rf+ 1.6(15-rf) where rf = risk free 20.4 - 24 = rf - 1.6rf -3.6 = -0.6rf rf = 6
49%....in reality no stock has a beta of 7
From Investopedia.com: The capital market line (CML) is a line used in the capital asset pricing model to illustrate the rates of return for efficient portfolios depending on the risk-free rate of return and the level of risk (standard deviation) for a particular portfolio. The CML is derived by drawing a tangent line from the intercept point on the efficient frontier to the point where the expected return equals the risk-free rate of return. The CML is considered to be superior to the efficient frontier since it takes into account the inclusion of a risk-free asset in the portfolio. The capital asset pricing model (CAPM) demonstrates that the market portfolio is essentially the efficient frontier. This is achieved visually through the security market line (SML). The security market line is a line that graphs the systematic, or market, risk versus return of the whole market at a certain time and shows all risky marketable securities. The SML essentially graphs the results from the capital asset pricing model (CAPM) formula. The x-axis represents the risk (beta), and the y-axis represents the expected return. The market risk premium is determined from the slope of the SML. The security market line is a useful tool in determining whether an asset being considered for a portfolio offers a reasonable expected return for risk. Individual securities are plotted on the SML graph. If the security's risk versus expected return is plotted above the SML, it is undervalued because the investor can expect a greater return for the inherent risk. A security plotted below the SML is overvalued because the investor would be accepting less return for the amount of risk assumed.
An increase in a firm's expected growth rate would normally cause its required rate of return to
E (return) = Rf + Beta[Rm - Rf] = 6 + (7) (13-6) = 55 %
A portfolio manager who examines the expected rate of return & risk statistics for many bonds & stocks may select assets worthy of investment by using a dominance principle