A stock has an expected return of 13.7 percent, the risk-free rate is 2.4 percen

Question

A stock has an expected return of 13.7 percent, the risk-free rate is 2.4 percent, and the market risk premium is 9.9 percent. What must the beta of this stock be?

You own a stock portfolio invested 20 percent in Stock Q, 18 percent in Stock R, 5 percent in Stock S, and 57 percent in Stock T. The betas for these four stocks are 1.2, .4, 1.3, and .8, respectively. What is the portfolio beta?

A stock has a beta of 1.25, the expected return on the market is 15 percent, and the risk-free rate is 4.60 percent. What must the expected return on this stock be?

Explanation / Answer

13.7%=2.4%+beta*9.9%, so, Beta =1.14

Beta of the portfolio =0.2*1.2+0.18*0.4+0.5*1.3+0.57*0.8 =1.418

Market Risk premium = expected return on the market - risk-free rate=15%-4.60% =10.4%

Expected return = 4.60%+1.25*10.4%=17.6%

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