BFC is an agribusiness with a highly variable cash flow, but where the risks tend to be related to weather, commodity price cycles and other random factors not closely tied to the business cycle. Indeed, the correlation between the return on BFC equity and the return on the S&P 500 is just 0.3. However, the variance of the return on BFC’s equity is 12.25 times the variance of the return on the S&P 500. a) What is the CAPM beta coefficient for BFC equity? b) If the current risk-free rate is 3% and the expected return on the S&P 500 is 10.5%, what is the expected return on BFC equity according to CAPM?
BFC is an agribusiness with a highly variable cash flow, but where the risks tend to be related to weather, commodity price cycles and other random factors not closely tied to the business cycle. Indeed, the correlation between the return on BFC equity and the return on the S&P 500 is just 0.3. However, the variance of the return on BFC’s equity is 12.25 times the variance of the return on the S&P 500. a) What is the CAPM beta coefficient for BFC equity? b) If the current risk-free rate is 3% and the expected return on the S&P 500 is 10.5%, what is the expected return on BFC equity according to CAPM?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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BFC is an agribusiness with a highly variable cash flow, but where the risks tend to be related to weather, commodity price cycles and other random factors not closely tied to the business cycle. Indeed, the correlation between the
a) What is the
b) If the current risk-free rate is 3% and the expected return on the S&P 500 is 10.5%, what is the expected return on BFC equity according to CAPM?
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