The stock of Big Joe's has a beta a 1.14 and an expected return of 11.6%.The risk-free rate of return is 4%.What is the expected return on the market?
A)7.60%
B)8.04%
C)9.33%
D)10.67%
E)12.16%

Question

Quizplus · Accepted Answer

The expected return on the market 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: 11.6% = 4% + 1.14 * (Market Return - 4%). Solving for Market Return gives 10.67%.

The Stock of Big Joe's Has a Beta a 1