Question

A stock has an expected return of 16 percent, the risk-free rate is 6.4 percent, and the market risk premium is 7.3 percent.Required:What must the beta of this stock be? (Do not round intermediate calculations. Round your answer to 3 decimal places (e.g., 32.161).) Beta

Answer 1

The beta of the stock must be = 1.315 (approx).

Step-by-step explanation:

Considering the following formula, we get:

expected return = 16

Risk free rate = 6.4

Market risk premium = 7.3

expected return=risk-free rate+beta* market risk premium

hence

16 = 6.4 + beta * 7.3

hence beta=(16 - 6.4)/7.3 =1.315(approx).