A stock has an expected return of 17 percent, its beta is 1.35, and the risk-fre

Question

A stock has an expected return of 17 percent, its beta is 1.35, and the risk-free rate is 4 percent. What must the expected return on the market be? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

A stock has an expected return of 17 percent, its beta is 1.35, and the risk-free rate is 4 percent. What must the expected return on the market 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=Risk free rate+Beta*(MArket rate-Risk free rate)

Hence

17=4+1.35*(Market rate-4)

Hence market rate=(17-4)/1.35+4

=13.63%(Approx)

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