Question

The risk-free rate is 4.5 percent and the market expected return is 10.8 percent. What is the expected return of a stock that has a beta of 1.30? a) 1269% b) 20 09% c) 11 28% d) 15.62% e) 18.54%

Answer 1

For this question you can use the CAPM formula:

E(rs) = risk free + (market return - risk free rate)*(beta)

=4.5% + (10.8% - 4.5%) * 1.3

= 4.5% + 8.19%

= 12.69%

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