Final answer:
The expected return on the Sarina Stable Supply stock is 9.3 percent, which aligns with option C. The calculation is based on the sum of the risk-free rate and the risk premium, and inflation is not factored into this calculation.
Step-by-step explanation:
The correct answer is option B. To calculate the expected return on Sarina Stable Supply stock, we add the risk premium to the risk-free rate. This is because the risk premium is the expected return in excess of the risk-free rate that investors require for choosing to purchase stocks over a risk-free asset. Mathematically, we calculate the expected return as:
Expected return = Risk-free rate + Risk premium = 3.1% + 6.2% = 9.3%.
Since the inflation rate is not used in this specific expected return calculation, we do not need to account for it here. Therefore, the expected return on this stock is 9.3 percent, aligning with option C.
The correct answer is option B. To calculate the expected return on a stock, you need to consider the risk premium, inflation rate, and risk-free rate. The expected return is calculated by adding the risk-free rate to the risk premium.
In this case, the risk premium is 6.2 percent, the inflation rate is 1.7 percent, and the risk-free rate is 3.1 percent. So, the expected return on this stock is calculated as:
Expected Return = Risk-Free Rate + Risk Premium = 3.1% + 6.2% = 9.3%
Therefore, the expected return on this stock is 9.3 percent, which corresponds to option B.