A stock has a beta of.8 and an expected return of 6%. The risk-free rate is 3%. What is the expected return on the market?
A) 3.50%
B) 3.75
C) 4.50%
D) 5.25%
E) 6.75%

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 us: Market Return = ((Expected Return - Risk-Free Rate) / Beta) + Risk-Free Rate. Plugging in the given values: Market Return = ((6% - 3%) / 0.8) + 3% = 6.75%.

A Stock Has a Beta Of