CSG Limited's ordinary shares have a beta of 1.5.If the expected risk-free return is 2% and the expected return on the market is 14%,what is the expected return on the shares?
A)13.5%
B)21.0%
C)16.8%
D)20.0%

Question

Quizplus · Accepted Answer

The expected return on the shares can be calculated using the Capital Asset Pricing Model (CAPM):

Expected return on shares = Risk-free rate + Beta of shares x (Expected return on market - Risk-free rate)
Expected return on shares = 2% + 1.5 x (14% - 2%)
Expected return on shares = 2% + 1.5 x 12%
Expected return on shares = 2% + 18%
Expected return on shares = 20%

CSG Limited's Ordinary Shares Have a Beta of 1