What is the expected market return if the expected return on Asset X is 20 percent, its beta is 1.5, and the risk free rate is 5 percent?
A) 5.0%
B) 7.5%
C) 15.0%
D) 22.5%

Question

Quizplus · Accepted Answer

The expected market return can be calculated using the Capital Asset Pricing Model (CAPM): 
Expected market return = risk-free rate + beta x (expected return on asset - risk-free rate)
Expected market return = 5% + 1.5 x (20% - 5%) = 5% + 22.5% = 27.5%
Therefore, the expected market return is 15%, which is the closest answer choice available.

What Is the Expected Market Return If the Expected Return