Question

The common stock of Flavorful Teas has an expected return of 13.37 percent. The return on the market is 12.5 percent and the risk-free rate of return is 3.8 percent. What is the beta of this stock

Answer 1

Answer: 1.1

Step-by-step explanation:

Using the Capital Asset Pricing model, the beta can be made the subject and solved.

Expected Return = Risk-free rate + Beta * (Market return - Risk-free rate)

13.37% = 3.8% + Beta * ( 12.5% - 3.8%)

Beta = (13.37% - 3.8%) / (12.5% - 3.8%)

Beta = 9.57%/ 8.7%

Beta = 1.1