A stock has an expected return of 13.8 percent, the risk-free rate is 4.5 percen

Question

A stock has an expected return of 13.8 percent, the risk-free rate is 4.5 percent, and the market risk premium is 7.5 percent. What must the beta of this stock be? (Do not round intermediate calculations. Round your answer to 2 decimal places, e.g., 32.16.)

A stock has an expected return of 13.8 percent, the risk-free rate is 4.5 percent, and the market risk premium is 7.5 percent. What must the beta of this stock be? (Do not round intermediate calculations. Round your answer to 2 decimal places, e.g., 32.16.)

Explanation / Answer

Assume the Beta = X Expected Return = Beta * market risk premium + Risk free Rate of Rerun 13.8% = X * 7.5% + 4.5% OR 0.138 = X * 0.075 + 0.045 So, X * 0.075 = 0.138 - 0.045 X * 0.075 = 0.093 X = 0.093 / 0.075 X = 1.24 Answer = Beta = 1.24

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