Question

The risk-free rate is 2.69% and the market risk premium is 6.64%. A stock with a β of 0.93 will have an expected return of ____%.

Answer 1

A stock with a β of 0.93 has an expected return of 8.8652%, calculated using the CAPM formula by adding the risk-free rate of 2.69% to the product of the β value and the market risk premium of 6.64%.

Step-by-step explanation:

The expected return for a stock with a β of 0.93, given a risk-free rate of 2.69% and a market risk premium of 6.64%, can be calculated using the Capital Asset Pricing Model (CAPM). The formula for CAPM is:

Expected return = Risk-free rate + (β * Market risk premium)

Plugging in the numbers:

Expected return = 2.69% + (0.93 * 6.64%)

Expected return = 2.69% + 6.1752%

Expected return = 8.8652%

Therefore, a stock with a β of 0.93 is expected to have a return of 8.8652%.