What will happen to the expected return on a stock with a Beta of 1.5 and a market risk premium of 9% if the Treasury bill yield increases from 3% to 5%?
A)the expected return will remain unchanged
B)the expected return will increase by 1.0%
C)the expected return will increase by 2.0%
D)the expected return will increase by 3.0%

Question

Quizplus · Accepted Answer

The expected return on a stock is calculated using the Capital Asset Pricing Model (CAPM): Expected Return = Risk-Free Rate + Beta * Market Risk Premium. If the Treasury bill yield (risk-free rate) increases from 3% to 5%, the expected return will increase by 2% (5% - 3%).

What Will Happen to the Expected Return on a Stock