The risk-free rate of return is currently 3 percent, whereas the market risk premium is 6 percent. If the beta of Lenz, Inc., stock is 1.8, then what is the expected return on Lenz?
A) 8.40%
B) 10.80%
C) 13.80%
D) 19.20%

Question

Quizplus · Accepted Answer

The expected return on Lenz can be calculated using the CAPM formula:
Expected return = Risk-free rate + Beta × (Market risk premium)
Expected return = 3% + 1.8 × 6%
Expected return = 3% + 10.8%
Expected return = 13.80%

The Risk-Free Rate of Return Is Currently 3 Percent, Whereas