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A stock has an expected return of 16.1 percent, the risk-free rate is 6.45 percent, and the market risk premium is 7.2 percent. What must the beta of this stock be
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43 votes
43 votes
A stock has an expected return of 16.1 percent, the risk-free rate is 6.45 percent, and the market risk premium is 7.2 percent. What must the beta of this stock be

User Persixty
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1 Answer

13 votes
13 votes

Answer:

the beta of the stock is 1.34

Step-by-step explanation:

The calculation of the beta of the stock should be

As we know that

Expected rate of return = Risk free rate + beta × market risk premium

16.1 = 6.45% + beta × 7.2%

16.1% - 6.45% = beta × 7.2%

9.65% = beta × 7.2%

So, the beta should be

= 9.65% ÷ 7.2%

= 1.34

Hence, the beta of the stock is 1.34

User Kinezu
by
2.4k points
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