Question

A stock has a beta of 1.30, the expected return on the market is 10 percent, and the risk-free rate is 4.6 percent. What must the expected return on this stock be? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.G., 32.16.)

Answer 1

11.62%

Explanation:

Calculation for What must the expected return on this stock be

Using this formula

Expected return=Risk-free rate+(Expected market return -Risk-free rate)*Beta

Let plug in the formula

Expected return=4.6%+(10%-4.6%)*1.30

Expected return=4.6%+(5.4%*1.30)

Expected return=0.046+0.0702

Expected return=0.1162*100

Expected return=11.62%

Therefore What must the expected return on this stock is 11.62%