Question

The common stock of Flavorful Teas has an expected return of 12.00 percent. The return on the market is 8 percent and the risk-free rate of return is 3.0 percent. What is the beta of this stock?

Answer 1

1.8

Step-by-step explanation:

The beta of the stock can be calculated by rearranging the expected return formula. The expected return formula is given below

DATA

Risk free rate of return = 3%

Return on the market = 8%

Expected return = 12%

Beta =?

Expected return = Risk free rate of return x Beta( Return on market - Risk free rate of return)

12% = 3% x Beta(8% - 3%)

12% - 3% = Beta (5%)

9% / 5% = Beta

Beta = 1.8