A stock has an expected return of 10.5 percent, its beta is 1.15, and the risk-f

Question

A stock has an expected return of 10.5 percent, its beta is 1.15, and the risk-free rate is 5 percent. What must the expected return on the market be? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))

A stock has an expected return of 10.5 percent, its beta is 1.15, and the risk-free rate is 5 percent. What must the expected return on the market be? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))

Explanation / Answer

expected return on stock = risk-free + beta * expected retun on market

r_a = r_f +b(r_m-r_f)

0.105 =0.05 + 1.15*(r_m-0.05)

r_m= 0.0978

so, 9.78%

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