Question

A stock has an expected return of 10.2 percent, the risk-free rate is 3.9 percent, and the market risk premium is 7.2 percent. What must the beta of this stock be?

Answer 1

The beta of a stock with an expected return of 10.2%, a risk-free rate of 3.9%, and a market risk premium of 7.2% is 0.875.

Step-by-step explanation:

The student has asked a question related to the calculation of the beta of a stock, using the Capital Asset Pricing Model (CAPM). The CAPM formula is given by:

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

Given the expected return of 10.2%, a risk-free rate of 3.9%, and a market risk premium of 7.2%, we can rearrange the CAPM formula to solve for Beta:

Beta = (Expected Return - Risk-Free Rate) / Market Risk Premium

Beta = (10.2% - 3.9%) / 7.2%

Beta = 6.3% / 7.2%

Beta = 0.875

Therefore, the beta of the stock must be 0.875.

Answer 2

Answer: The beta of the stock is 1.91

Step-by-step explanation:

10.2= 3.9 + (7.2 - 3.9)(X)

= 6.3= 3.3x

=. X = 1.91