Question

A stock has an expected return of 8.19 percent and its reward-to-risk ratio is 6.9 percent. If the risk-free rate is 2.15 percent, what is the stock's beta

Answer 1

0.87

Step-by-step explanation:

The beta of the stock can be calculated by rearranging the Reward to risk ratio formula. The Reward to risk ratio is given below

DATA

Risk free rate of return = 2.15%

Reward to risk ratio = 6.9%

Expected return = 8.19%

Beta =?

Reward to risk ratio = (expected return - risk free rate) / beta.

6.9% = ( 8.19% - 2.15%) / beta

6.9% = 6.04%/beta

beta = 6.04% / 6.9%

beta = 0.87