Question

Assume the expected return on the market is 6 percent and the risk-free rate is 4 percent. What is the expected return for a stock with a beta equal to 2.00

Answer 1

Answer: 8%

Step-by-step explanation:

This can be calculated using the Capital Asset Pricing Model. The formula of which is:

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

= 4% + 2 * (6% - 4%)

= 4% + 4%

= 8%