Question

A stock has a beta of 1.15, the expected return on the market is 10.3 percent, and the risk-free rate is 3.8 percent. What must the expected return on this stock be

Answer 1

11.28%

Step-by-step explanation:

A stock has a beta of 1.15

The expected return on the market is 10.3%

The risk-free rate is 3.8%

Therefore, the expected return on the stock can be calculated as follows

Expected return= Risk-free rate+beta(expected return on the market-risk-free rate)

= 3.8%+1.15(10.3%-3.8%)

= 3.8%+(1.15×6.5)

= 3.8%+7.475

= 11.28%

Hence the expected return on the stock is 11.28%