Given an expected market return of 10.0%,a beta of 1.75 for Carlson Industries,and a risk-free rate of 2.0%,what is the expected return for the firm?
A)16.0%
B)10.0%
C)9.0%
D)4.0%

Question

Quizplus · Accepted Answer

The expected return for the firm can be calculated using the Capital Asset Pricing Model (CAPM) as follows:

Expected return = Risk-free rate + Beta * (Market return - Risk-free rate)
Expected return = 2.0% + 1.75 * (10.0% - 2.0%)
Expected return = 2.0% + 1.75 * 8.0%
Expected return = 2.0% + 14.0%
Expected return = 16.0%

Therefore, the expected return for Carlson Industries is 16.0%, which is option A.

Given an Expected Market Return of 10