Question

Assume the following information about the market and RoseApple's stock.

RoseApple's beta = 1.50, the risk-free rate is 2%, the market risk premium is 8.0%. Using the SML, what is the expected return for RoseApple's stock?

Answer 1

the expected return for RoseApple's stock is 14%

Step-by-step explanation:

The computation of the expected rate of return is shown below:

As we know that

Expected return = Risk-free rate of return + Beta × market risk premium

= 2% + 1.50 × 8%

= 2% + 12%

= 14%

Hence, the expected return for RoseApple's stock is 14%

Therefore the above formula is applied to determine the expected return