Question

How is the expected return on an asset (Ei) calculated in the CAPM formula?

a.

Ei = rf + (Em - rf)

b.

Ei = rf x (Em - rf) x bi

c.

Ei = rf + (Em - rf) x bi

d.

Ei = rf - (Em - rf) x bi

Posted under IC 92 Actuarial Aspects of Product Development

Answer: (c).Ei = rf + (Em - rf) x bi Explanation:The expected return on an asset (Ei) in the CAPM formula is calculated using the equation Ei = rf + (Em - rf) x bi, where rf is the return on a risk-free asset, Em is the expected market return, and bi is the beta factor of the asset.

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Q. How is the expected return on an asset (Ei) calculated in the CAPM formula?
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