Question

Assume the following information about the market and jumpmasters' stock. jumpmasters' beta = 1.50, the risk-free rate is 3.50%, the market risk premium is 10.0%. using the sml, what is the expected return for jumpmasters' stock?

a. 7.50%
b. 18.50%
c. 13.50%
d. 27.00%

Answer 1

The expected return for Jumpmasters' stock is calculated using the SML equation. By plugging in the given beta, risk-free rate, and market risk premium, we find that the expected return is 18.50%. Therefore, the correct option is B.

Step-by-step explanation:

The expected return for Jumpmasters' stock using the Security Market Line (SML) equation can be calculated using the following formula: expected return = risk-free rate + (beta × market risk premium). Given Jumpmasters' beta is 1.50, the risk-free rate is 3.50%, and the market risk premium is 10.0%, we can compute the expected return as follows:

Expected return = 3.50% + (1.50 × 10.0%)

Expected return = 3.50% + 15.00%

Expected return = 18.50%

The correct answer is b. 18.50%