If IBM has a beta of 1.2 when the risk-free rate is 6% and the expected return on the market portfolio is 18%, the expected return on IBM is:
A) 17.2%
B) 20.4%
C) 22.1%
D) 23.6%

Question

Quizplus · Accepted Answer

The expected return on IBM can be calculated using the Capital Asset Pricing Model (CAPM) formula: Expected Return = Risk-Free Rate + Beta * (Market Return - Risk-Free Rate). Plugging in the given values: Expected Return = 6% + 1.2 * (18% - 6%) = 6% + 1.2 * 12% = 6% + 14.4% = 20.4%.

If IBM Has a Beta of 1