A stock has a beta of 0.95, the expected return on the market is 13.25, and the risk-free rate is 3.66.What must the expected return on this stock be?
A)10.59 percent
B) 39.02 percent
C)14.26 percent
D)19.86 percent
E)12.77 percent

Question

A stock has a beta of 0.95, the expected return on the market is 13.25, and the risk-free rate is 3.66.What must the expected return on this stock be?
A)10.59 percent 
B) 39.02 percent
C)14.26 percent
D)19.86 percent
E)12.77 percent

Quizplus · Accepted Answer

The expected return on the stock can be calculated using the Capital Asset Pricing Model (CAPM): Expected Return = Risk-Free Rate + Beta * (Market Return - Risk-Free Rate). Plugging in the values: 3.66 + 0.95 * (13.25 - 3.66) = 12.77 percent.

A Stock Has a Beta of 0