A stock has an expected return of 14.5%, the risk-free rate is 4% and the return on the market is 11%. What is this stock's beta?
A) 1.5
B) 3.0
C) 1.05
D) .94

Question

Quizplus · Accepted Answer

We can use the Capital Asset Pricing Model (CAPM) formula to solve for beta:

Expected return = Risk-free rate + Beta * (Market return - Risk-free rate)

Plugging in the given values, we get:

14.5% = 4% + Beta * (11% - 4%)

Simplifying the equation:

10.5% = 7% * Beta

Beta = 10.5% / 7% = 1.5

Therefore, the answer is A) 1.5.

A Stock Has an Expected Return of 14