A stock has an expected return of 11.5 percent, its beta is 1.25, and the risk-f

Question

A stock has an expected return of 11.5 percent, its beta is 1.25, and the risk-free rate is 4.5 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 11.5 percent, its beta is 1.25, and the risk-free rate is 4.5 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 Rate+ Beta( Market Return- Risk Free Rate) 11.5 = 4.5+1.25(x-4.5) 11.5-4.5= 1.25(x-4.5) 5.6 = x-4.5 x = 5.6+4.5 10.1 The Market Return is 10.10%

Related Questions

Navigate

• Browse (All)
• Browse A
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.