A stock has a beta of 1.28, the expected return on the market is 12 percent, and

Question

A stock has a beta of 1.28, the expected return on the market is 12 percent, and the risk-free rate is 4.5 percent. What must the expected return on this stock be? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

A stock has a beta of 1.28, the expected return on the market is 12 percent, and the risk-free rate is 4.5 percent. What must the expected return on this stock be? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

Explanation / Answer

Expected return = Rf+×Rp

Rf is risk free return

Rp is risk premium

= 4.5%+1.28×(12%-4.5%)

= 14.1%

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