The risk-free rate of return is 5% and the market risk premium is 7%. What is the expected rate of return on a stock with a beta of 1.56?
A) 10.23%
B) 11.08%
C) 12.00%
D) 15.92%
E) 16.36%

Question

Quizplus · Accepted Answer

The formula to calculate the expected rate of return is:
Expected Return = Risk-free rate + (Beta x Market Risk Premium)

Plugging in the given values: 
Expected Return = 5% + (1.56 x 7%) 
Expected Return = 5% + 10.92% 
Expected Return = 15.92%

Therefore, the expected rate of return on the stock with a beta of 1.56 is 15.92%. The correct choice is option D.

The Risk-Free Rate of Return Is 5% and the Market