Consider the capital asset pricing model. the market degree of risk aversion, a, is 3. the risk premium is 2.25%. if the risk-free rate of return is 4%, the expected return on the market portfolio is

SO expected return on Mkt Portfolio Rm = 10.75%

Explanation:

market degree of risk aversion A = 3

Var = 0.0225 = SD^2

Rf = 4%

What is expected return on Mkt Portfolio ie Rm??

According to CAPM, Rm-Rf = A*SD^2

where SD is Std Dev (Recall SD^2 = Variance)

A is market degree of risk aversion

So we have Rm-4% = 3*0.0225

ie Rm = 4% + 3*0.0225 = 10.75%

SO expected return on Mkt Portfolio Rm = 10.75%

what are the options

explanation: