Assume that a security is fairly priced and has an expected rate of return of 0.13.The market expected rate of return is 0.13 and the risk-free rate is 0.04.The beta of the stock is ___.
A)1.25.
B)1.7.
C)1.
D)0.95.s.
E)none of the above.

Question

Quizplus · Accepted Answer

If a security is fairly priced, then its expected rate of return should be equal to its required rate of return (i.e., the return that compensates investors for the risk they are taking). 
The required rate of return for this security can be calculated using the capital asset pricing model (CAPM):
Required rate of return = Risk-free rate + Beta*(Market expected rate of return - Risk-free rate)
0.13 = 0.04 + Beta*(0.13 - 0.04)
0.09 = Beta*0.09
Beta = 1

Assume That a Security Is Fairly Priced and Has an Expected