1.In February 2014 the risk-free rate was 4.37 percent, the market risk premium

Question

1.In February 2014 the risk-free rate was 4.37 percent, the market risk premium was 7 percent, and the beta for Twitter stock was 1.56. What is the expected return that was consistent with the systematic risk associated with the returns on Twitter stock? (Round answer to 2 decimal places, e.g. 17.54%.)

Expected return ?

2.The market risk premium is 5.98 percent, and the risk-free rate is 4.23 percent. If the expected return on a bond is 6.48 percent, what is its beta? (Round answer to 2 decimal places, e.g. 15.25.)

Beta of the bond?

Explanation / Answer

1)

Expected return:

Risk free rate + Beta *(Market risk premium)

=4.37 + 1.56(7)

=15.29%

2)

Expected return = Risk free rate + Beta *(Market risk premium)

6.48 = 4.23% + Beta * 5.98

2.25 = 5.98 beta

Beta =2.25/5.98 = 0.38

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