The expected return on HiLo stock is 14.08 percent while the expected return on the market is 11.5 percent.The beta of HiLo is 1.26.What is the risk-free rate of return?
A).41 percent
B)2.01 percent
C).69 percent
D)1.58 percent
E)1.62 percent

Question

Quizplus · Accepted Answer

The expected return on a stock 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: 14.08% = Risk-Free Rate + 1.26 * (11.5% - Risk-Free Rate). Solving for the Risk-Free Rate gives approximately 1.58%.

The Expected Return on HiLo Stock Is 14