Question

Assume the following information about the market and​JumpMasters' stock.​ JumpMasters' beta​ = 1.50, the​ risk-free rate is​ 3.50%. Te market risk​ premium, i.e. the market return in excess of the risk free rate is​ 10%. Using the Securities Market Line​ (SML) in the context of the​ CAPM, what is the Expected Return for​ JumpMasters' stock?

A.​13.50%
B.​ 27%
C. 7.50%
D. 18.50%

Answer 1

D. 18.50%

Step-by-step explanation:

E(r i) = rf + (rf + [E(rm) - rf]*Bi)

= 3.50% + 1.50%*(13.50% - 3.50%)

= 18.50%

Therefore, The Expected Return for​ JumpMasters' stock is 18.50%.