Question

the stock of carl industries has a beta of 1.43. the yield on u.s. treasury securities is 3.6% and observers agree that the market risk premium is 9%. what is the expected return on carl industries stock?

Answer 1

The expected return on Carl Industries stock, calculated using CAPM, is 16.47%.

Step-by-step explanation:

The expected return on Carl Industries stock can be calculated using the Capital Asset Pricing Model (CAPM). Based on the given beta of 1.43, the yield on U.S. Treasury securities of 3.6%, and the market risk premium of 9%, we can find the expected return. The CAPM formula is Expected Return = Risk-Free Rate + (Beta × Market Risk Premium).

Plugging the values into the formula we get:
Expected Return = 3.6% + (1.43 × 9%)
Expected Return = 3.6% + 12.87%
Expected Return = 16.47%

Therefore, the expected return on Carl Industries stock is 16.47%.