Suppose that the Treasury bill rate is 6% rather than 3%, as we assumed in Table

Question

Suppose that the Treasury bill rate is 6% rather than 3%, as we assumed in Table 121 but that the expected return on the market is still 10%. Use the betas in that table to answer the following questions. a. Calculate the expected return from Pfizer. (Do not round intermediate calculations. Enter your answer as a percent rounded to 1 decimal place.) Expected return b. What is the highest expected return offered by one of these stocks? (Do not round intermediate calculations. Enter your answer as a percent rounded to 1 decimal place.) Expected return c. What is the lowest expected return offered by one of these stocks? (Do not round intermediate calculations. Enter your answer as a percent rounded to 1 decimal place.) Expected return

Explanation / Answer

a)

b)

c)

Stock expected return (r) Rf+×Rp Here, Risk free rate of return (Rf) 6.00% Beta of the stock ()                    0.90 Market risk premium (Rp) 4.00% 10%-6% Stock expected return (r) 9.60% 6%+0.90*4%

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