Question

the common stock of flavorful teas has an expected return of 13.92 percent. the return on the market is 12 percent and the risk-free rate of return is 2.4 percent. what is the beta of this stock?

Answer 1

The beta of the stock is 1.2.

Step-by-step explanation:

To calculate the beta of a stock, you need the expected return of the stock, the return on the market, and the risk-free rate of return. In this case, the expected return of the stock is 13.92 percent, the return on the market is 12 percent, and the risk-free rate of return is 2.4 percent. The formula to calculate beta is: beta = (expected return of the stock - risk-free rate of return) / (return on the market - risk-free rate of return).

Plugging in the numbers, we get: beta = (13.92% - 2.4%) / (12% - 2.4%) = 11.52% / 9.6% = 1.2.

Therefore, the beta of this stock is 1.2.

Answer 2

To find Flavorful Teas' stock beta, one uses the CAPM formula by plugging in the expected stock return, market return, and risk-free rate. Calculated, the beta comes out to be 1.2.

Step-by-step explanation:

To calculate the beta of Flavorful Teas' stock, we can use the Capital Asset Pricing Model (CAPM). The CAPM equation is:

Expected return on stock = Risk-free rate + (Beta * (Return on market - Risk-free rate))

By substituting the given values into the equation:

13.92% = 2.4% + (Beta * (12% - 2.4%))

We can solve for Beta as follows:

13.92% - 2.4% = Beta * (12% - 2.4%)
11.52% = Beta * 9.6%
Beta = 11.52% / 9.6%
Beta = 1.2

Therefore, the beta of the stock is 1.2.