Given the capital asset pricing model, a security with a beta of 1.5 should return [blank], if the risk-free rate is 3% and the market return is 11%.
A)16.5%
B)14.0%
C)14.5%
D)15.0%

Question

Quizplus · Accepted Answer

According to the Capital Asset Pricing Model, the expected return of a security is given by:
Expected return = Risk-free rate + Beta x (Market return - Risk-free rate)
Substituting the given values, we get:
Expected return = 3% + 1.5 x (11% - 3%)
Expected return = 3% + 1.5 x 8%
Expected return = 3% + 12%
Expected return = 15%
Therefore, the correct answer is D) 15.0%.

Given the Capital Asset Pricing Model, a Security with a Beta