Question

A stock has a beta of 1.09, the expected return on the market is 10.3 percent, and the risk-free rate is 4.8 percent.Required:What must the expected return on this stock be? (Do not round intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).)Expected return %

Answer 1

10.8%

Step-by-step explanation:

The beta is 1.09

The expected return on the market is 10.3

The risk-free rate is 4.8

Therefore the expected return on the stock can be calculated as follows

= 4.8 + 1.09(10.3-4.8)

= 4.8 + 1.09(5.5)

= 4.8 + 5.995

= 10.8%

Hence the expected return on the stock is 10.8%