Question

Consider the CAPM: Olmsted stock has a beta of 1.4 and is expected to return 18%. If the risk-free rate is 6%, what is the expected return on the S

Answer 1

Model (CAPM) formula:

Expected Return on Stock = Risk-Free Rate + Beta * (Expected Return on Market - Risk-Free Rate)

Given the information provided:

Beta (β) of Olmsted stock = 1.4

Expected Return on Olmsted stock = 18%

Risk-Free Rate = 6%

Now, let's calculate the expected return on the market (S):

Expected Return on Market (S) = Risk-Free Rate + Beta * (Expected Return on Market - Risk-Free Rate)

Expected Return on Market (S) = 6% + 1.4 * (Expected Return on Market - 6%)

To find the value of the expected return on the market (S), we need additional information about the expected return on the market. If you provide the expected return on the market, we can substitute that value into the formula and calculate the expected return on the market (S).