Answer:
Step-by-step explanation:
To calculate the fair return on a stock, we need to use the Capital Asset Pricing Model (CAPM), which is:
Expected Return = Risk-Free Rate + Beta x Market Risk Premium
In this case, we are given the market risk premium and the yield on a Treasury bond, which we can assume is the risk-free rate. Therefore:
Risk-Free Rate = 1.02%
Market Risk Premium = 5.41%
We are not given the beta of the stock, so we cannot calculate the expected return using CAPM. The beta of a stock measures the systematic risk of the stock compared to the overall market. Without knowing the beta, we cannot determine the fair return on the stock using this model.