Question

What is the expected rate of return for a stock that has a beta of 1 if the expected return on the market is 13%?A. 15%.B. More than 15%.C. Cannot be determined without the risk-free rate.

Answer 1

Answer:

Option C,  Cannot be determined without the risk-free rate, is the right answer.

Explanation:

Given the beta value = 1

The expected return on the market = 13%

From the given information we have to find the expected rate of return but without risk-free rate, it can not be determined because if we calculate the expected return then the resulting expected rate of return is not in the options. Below is the formula for the expected return.

Expected return = risk-free interest rate + Beta value × (Market rate- risk-free rate).

As the risk-free rate is not given so as the expected return cannot be determined.