Question

what is the expected return for idaho bakery stock if the stock has a beta of 1.75, the expected return on the market is 12.54 percent, the risk-free rate is 5.10 percent, and inflation is 3.21 percent?(round the value to 100th decimal and please enter the value only without converting it to a decimal format. if the answer is 8.55%, enter 8.55)

Answer 1

The expected return for Idaho Bakery stock with a beta of 1.75, given the market return is 12.54 percent and the risk-free rate is 5.10 percent, is 18.12 percent.

Step-by-step explanation:

To calculate the expected return for Idaho Bakery stock, we use the Capital Asset Pricing Model (CAPM), which is given by the formula:

Expected Return = Risk-Free Rate + Beta * (Market Return - Risk-Free Rate)

By plugging the values into the formula, we get:

Expected Return = 5.10 + 1.75 * (12.54 - 5.10)

Expected Return = 5.10 + 1.75 * 7.44

Expected Return = 5.10 + 13.02

Expected Return = 18.12%

Therefore, the expected return for Idaho Bakery stock is 18.12 percent.