Suppose the Binder Corporation's common stock has a return of 17%. Assume the risk-free rate is 5%,the expected market return is 8%,and no unsystematic influence affected Binder's return. The beta for Binder is:
A) 0.
B) 2.
C) 3.
D) 4.
E) It is impossible to calculate beta without the inflation ratE. 17 = 5 + β(8 - 5); β = 4

Question

Quizplus · Accepted Answer

Using the capital asset pricing model (CAPM), we can calculate the beta of Binder Corporation as the slope of the regression line between the company's returns and the market returns. Thus, we can use CAPM to solve for beta as follows:

17% = 5% + β(8% - 5%)
12% = β(3%)
β = 4

Therefore, the correct answer is D, with a beta of 4.

Suppose the Binder Corporation's Common Stock Has a Return of 17