Question

The risk-free rate of return is 3.2 percent and the market risk premium is 4.6 percent. What is the expected rate of return on a stock with a beta of 2.12

Answer 1

12.95%

Step-by-step explanation:

The risk free rate of return is 3.2%

The market risk premium is 4.6%

The beta is 2.12

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

= 3.2% + (2.12×4.6%)

= 3.2% + 9.752

= 12.95%

Hence the expected rate of return on a stock is 12.95%