Question

Your estimate of the market risk premium is 5%. The risk-free rate of return is 4%, and General Motors has a beta of 1.5. According to the Capital Asset Pricing Model (CAPM), what is its expected return

Answer 1

The expected rate of return is 12.5%

Step-by-step explanation:

The computation of the expected rate of return using CAPM Model is shown below:

Expected rate of return = Risk free rate of return + Beta × Market risk premiun

= 4% + 1.5 × 5%

= 4% =+ 7.5%

= 12.5%

Hence, the expected rate of return is 12.5%

We simply applied the above formula

And, the same is to be considered