Treize Industries' common stock has an expected return of 13% and a beta of 1.3. If the expected risk-free return is 3%, what is the expected return for the market (round your answer to the nearest .1%)?
A) 7.7%
B) 9.6%
C) 10.0%
D) 10.7%

Question

Quizplus · Accepted Answer

Using the Capital Asset Pricing Model (CAPM), the expected return on a stock is calculated as: Expected Return = Risk-Free Rate + Beta * (Market Return - Risk-Free Rate). Plugging in the values: 13% = 3% + 1.3 * (Market Return - 3%). Solving for the Market Return gives us approximately 10.7%.

Treize Industries' Common Stock Has an Expected Return of 13