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    Question

    The expected return on the stock is 15%, the risk-free rate is 8% and the beta for the stock is 1.2. Compute the rate of return that would be expected on the stock.

    A 14.4 Correct Answer Incorrect Answer
    B 16.4 Correct Answer Incorrect Answer
    C 15.4 Correct Answer Incorrect Answer
    D 17.4 Correct Answer Incorrect Answer
    E 13.4 Correct Answer Incorrect Answer

    Solution

    According to CAPM Expected return on a stock is equal to = risk free rate + beta (market rate – risk free rate) = 0.08 + 1.2 (0.15 – 0.08) = 0.164 = 16.4%

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