The stock of Uncle Fred's has a beta a 1.23 and an expected return of 13.42%. The risk-free rate of return is 3.8%. What is the expected return on the market?
A) 9.87%
B) 10.04%
C) 10.67%
D) 11.23%
E) 11.62%

Question

Quizplus · Accepted Answer

The expected return on the market 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 = ((13.42% - 3.8%) / 1.23) + 3.8% = 11.62%.

The Stock of Uncle Fred's Has a Beta a 1