Question

The risk-free rate of return is 4 percent and the expected return on the market is 13.5 percent. what is the expected return for a stock with a beta of 1.16?

O 7.02 percent
O 11.66 percent
O 15.02 percent
O 19.66 percent

Answer 1

The expected return for a stock with a beta of 1.16, when the risk-free rate is 4% and the expected market return is 13.5%, is 15.02% as calculated using the CAPM model.

Step-by-step explanation:

Risk-free rate of 4 percent and an expected:

The expected return for a stock with a beta of 1.16, given a risk-free rate of 4 percent and an expected return on the market of 13.5 percent, is calculated using the Capital Asset Pricing Model (CAPM). According to CAPM, the expected return on a stock is equal to the risk-free rate plus the stock's beta multiplied by the market risk premium (expected market return minus risk-free rate).

Let's calculate the expected return: Expected return = Risk-free rate + (Beta × (Market return - Risk-free rate)) Expected return = 4% + (1.16 × (13.5% - 4%)) Expected return = 4% + (1.16 × 9.5%) Expected return = 4% + 11.02% Expected return = 15.02%. Given that the risk-free rate is 4 percent, the expected return on the market is 13.5 percent, and the stock has a beta of 1.16: