A stock has a beta of 1.26, the expected return on the market is 9 percent, and

Question

A stock has a beta of 1.26, the expected return on the market is 9 percent, and the risk-free rate is 4 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 1.26, the expected return on the market is 9 percent, and the risk-free rate is 4 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 on stock = Risk free return + Beta ( Market risk premium)

= 4% + 1.26 ( 9%-4%)

=4% + 6.30% i.e 10.30%

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