Question

The risk-free rate is 2.4% and the market expected return is 12.1%. What is the expected return of a stock that has a beta of .88?

Answer 1

Answer:Expected return on stock = 10.64%

Step-by-step explanation:

According to CAPM,Capital Asset Pricing Model CAPM, The expected

return on stock is given as

Er = Rf +β( Mr - Rf)

which means

Expected = Risk free rate + Beta x (Market rate - Risk free rate)

Therefore,

Expected return on stock = 2.4% + 0.88 x (12.1% - 2.4%)

=2.4% +0.88 (0.118)

=2.4% +0.10384

= 0.1064

10.64%

Expected return on stock = 10.64%