Question

The risk-free rate is 2.3 percent and the market expected return is 12 percent. What is the expected return of a stock that has a beta of .87?

Answer 1

The expected return = 10.739.

Step-by-step explanation:

Given risk-free rate of return = 2.3 per cent

Market expected return = 12 percent

The value of beta = 0.87

Use the below formula to find the expected return.

The expected return = Risk free rate of return + Beta × (Market expected return - risk free rate of return)

The expected return = 2.3 + 0.87 (12 – 2.3)

The expected return = 10.739