Calculate the expected return for B Services which has a beta of 0.83 when the risk-free rate is 0.05 and you expect the market return to be 0.12.
A) 14.96 percent
B) 16.15 percent
C) 10.81 percent
D) 17.00 percent
E) 15.25 percent

Question

Quizplus · Accepted Answer

The expected return can be calculated using the Capital Asset Pricing Model (CAPM) formula: Expected Return = Risk-Free Rate + Beta * (Market Return - Risk-Free Rate). Plugging in the values: Expected Return = 0.05 + 0.83 * (0.12 - 0.05) = 0.05 + 0.83 * 0.07 = 0.05 + 0.0581 = 0.1081 or 10.81 percent.

Calculate the Expected Return for B Services Which Has a Beta