A stock has a beta of 1.55, the expected return on the market is 13 percent, and

Question

A stock has a beta of 1.55, the expected return on the market is 13 percent, and the risk-free rate is 7.15 percent. The expected return on this stock must be _____ percent. (Do not include the percent sign (%). Round your answer to 2 decimal places. (e.g., 32.16))

A stock has a beta of 1.55, the expected return on the market is 13 percent, and the risk-free rate is 7.15 percent. The expected return on this stock must be _____ percent. (Do not include the percent sign (%). Round your answer to 2 decimal places. (e.g., 32.16))

Explanation / Answer

CAPM RETURN = RSK FREE RETURN = BETA X ( MARKET - RISK FREE RETURN)

= 7.15 + 1.55 X (13 - 7.15)

= 16.22%

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