Question

If a stock A has a beta of 1.6, the risk-free rate is 4% and the

market return is 10%, what is the CAPM expected rate of return for
stock A?
A. 4.80%
B. 8.60%
C. 11.80%
D. 13.60%

Answer 1

The CAPM formula is used to calculate the expected rate of return for a stock. Using the given information, we can calculate the CAPM expected rate of return for stock A as 13.6%.

Step-by-step explanation:

The CAPM formula is given by:

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

Using the provided information:

Expected Return = 0.04 + 1.6 * (0.10 - 0.04) = 0.04 + 1.6 * 0.06 = 0.04 + 0.096 = 0.136 or 13.6%

Therefore, the CAPM expected rate of return for stock A is 13.6%, so the correct answer is D. 13.60%.

The CAPM formula is used to calculate the expected rate of return for a stock. Using the given information, we can calculate the CAPM expected rate of return for stock A as 13.6%.