What is the expected market return if the expected return on asset A is 16% and the risk-free rate is 7%? Asset A has a beta of 1.2.
A) 9.5%
B) 14.5%
C) 16.5%
D) 17.5%
E) 20.5%

Question

Quizplus · Accepted Answer

The expected market return can be calculated using the Capital Asset Pricing Model (CAPM) formula: Expected Return = Risk-Free Rate + Beta * (Market Return - Risk-Free Rate). Rearranging the formula to solve for the Market Return gives: Market Return = ((Expected Return - Risk-Free Rate) / Beta) + Risk-Free Rate. Plugging in the given values: Market Return = ((16% - 7%) / 1.2) + 7% = 14.5%.

What Is the Expected Market Return If the Expected Return