CAPM equation and others?

Question

If the risk-free rate is 6.0%, the market risk premium is 13.0%, and the expected return on Security J is 14.7%, what is the beta for Security J?

I am taking a financial management class, and it's really kickin' my a**. I have looked through my reading, and there are so many different equations, that I do not even know where to start! If someone could tell me which equation is the CAPM equation, it would be sooooooo helpful!

I have searched the net trying to find a better description with an equation, but everytime I try to work it out with that question at the top, my answers don't match ANY of the multiple choice answers! I really don't know what I'm doing!

Answer 1

CAPM is as follows:

Required rate of return = Risk free rate + Beta X (Market risk prem). Market risk premium is equal to Market Return - Risk Free Rate.

I have found that the trickiness in CAPM questions is usually in the wording of the question and not the calculation. Make sure that market risk premium given is actually the market risk premium and not Rm which usually stands for market return which is Rf + Risk premium. If you have Rm, chances are you need to change the formula to Rr = Rf + B(Rm-Rf)

For the question given it would be solved as follows:

14.7 = 6 + B(13)
8.7 = B(13)
X = .67 = Beta

Answer 2

you ought to use a central authority bond for the possibility unfastened fee. If China doesnt undertaking bonds backed by ability of the government, or if there's a default threat, then the CAPM in all risk isnt going to paintings. Many companies in China are government controlled. So theoretically they woldnt have threat. So, you like a threat unfastened fee, and you like a unstable asset for the CAPM to be valid.