Question

According to the CAPM, what is the expected market return given an expected return on a security of 14.6%, a stock beta of 1.2, and a risk free interest rate of 5.0%?

Answer 1

the market return is 13%

Step-by-step explanation:

The computation of the expected market return is shown below:

As we know that

Expected return = risk free rate + beta × (market return - risk free rate)

14.6% = 5% + 1.2 × (market return - 5%)

14.6% - 5% = 1.2 × (market return - 5%)

9.6% = 1.2 × (market return - 5%)

8% = (market return - 5%)

So, the market return is

= 8% + 5%

= 13%

hence, the market return is 13%