Here you have just imagine some data and solve it out according to rate which are given in the option , you will get the ans.
Suppose Rf=3%,Market risk premi.(Rm)=4, and beta is =-0.5( take the 1st option), now you have to just check it out.
So, E(r)= Rf+(Rm-Rf)beta
= 3+4×(-0.5)
= 2.8
So ans should be option a , according you should check other option also.
The answer would be A. the Reason is very simple bola hai RF se kam kaise kamayenge E(Rp). TOh E(Rp)=RF+(Rm-Rf)*Beta. agar second term i.e. (Rm-Rf)*beta negative hua tabhi hum Rf se kam kamayenge i.e Rm-Rf humesha positive hoga toh bacha ek i.e Beta and beta would be negative.
Here you have just imagine some data and solve it out according to rate which are given in the option , you will get the ans.
Suppose Rf=3%,Market risk premi.(Rm)=4, and beta is =-0.5( take the 1st option), now you have to just check it out.
So, E(r)= Rf+(Rm-Rf)beta
= 3+4×(-0.5)
= 2.8
So ans should be option a , according you should check other option also.
CAPM:
E(R) =Rf + (Rm-Rf)Beta
If Beta is -.5
then E(R)< Rf
(-) sign reduces the value of expected return E(R)
E(R)= RF+(Rm-Rf) *B
1, They are asking what will lead E(R) to be less than RF
2, For that the second part of the equation needs to be as negative as good
3, But the issue is (RM-RF) part is fixed
4, So at last beta will make the equation negative
5, For that Reason Negative Beta is most suitable option
6, Rest even after all this Katha, Focus on Equation you will get things better.
The answer would be A. the Reason is very simple bola hai RF se kam kaise kamayenge E(Rp). TOh E(Rp)=RF+(Rm-Rf)*Beta. agar second term i.e. (Rm-Rf)*beta negative hua tabhi hum Rf se kam kamayenge i.e Rm-Rf humesha positive hoga toh bacha ek i.e Beta and beta would be negative.
Thanks