Question

A stock has a beta of 1.11, the expected return on the market is 10.5 percent, and the risk-free rate is 4.7 percent. What must the expected return on this stock be?

Answer 1

Answer:

The expected return is 11.14%

Explanation:

Given the beta of the stock = 1.11

The expected return = 10.5 %

The risk-free interest rate = 4.7 %

Now we have to find the expected return by using all the above information. Below is the calculation.

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

Expected return = 4.7 + 1.11 × (10.5-4.7)

Expected return = 11.14% (Approx).