The common stock of Industrial Technologies has an expected return of 15.6 percent. The market return is 11.2 percent and the risk-free return is 4.6 percent. What is the stock's beta?
A) 0.42
B) 1.00
C) 1.32
D) 1.42
E) 1.67

Question

Quizplus · Accepted Answer

The expected return of a stock is calculated using the Capital Asset Pricing Model (CAPM): Expected Return = Risk-Free Rate + Beta * (Market Return - Risk-Free Rate). Rearranging to solve for Beta gives: Beta = (Expected Return - Risk-Free Rate) / (Market Return - Risk-Free Rate). Substituting the given values: Beta = (15.6% - 4.6%) / (11.2% - 4.6%) = 1.67.

The Common Stock of Industrial Technologies Has an Expected Return