1 answer

A stock has a beta of 0.7. Suppose the expected market return is 8% and the...

Question:

A stock has a beta of 0.7. Suppose the expected market return is 8% and the risk-free rate is 2%. What is this stocks expect
A stock has a beta of 0.7. Suppose the expected market return is 8% and the risk-free rate is 2%. What is this stock's expected return according to the CAPM? Answer in percent, rounded to one decimal place. (e.g., 8.32% = 8.3)

Answers

Beta(B) = 0.7

Market Return (Rm)= 8%

Risk Free Rate (Rf) =2%

As per CAPM, Expected Return = Rf + B(Rm - Rf)

                        Expected Return = 2% +0.7(8% - 2%)

                        Expected Return = 2% + 0.7* 6%

                       Expected Return = 2% + 4.2%

                        Expected Return = 6.2%

.

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