Question

Snap On Inc has a beta of 2.67 and the expected market return is 0.19. In addition, Treasury bills (risk-free asset) are currently yielding 0.02. Find the expected return for Snap On Inc.

Answer 1

Answer: Expected Return = 0.47

Explanation:

Using the CAPM, The Capital Asset Pricing Model formulae , we have that  

Expected Return = Risk Free Rate + Beta(Market Return - Risk Free Rate)

Where

market return is 0.19

 Beta =2.67

risk-free asset= 0.02

Expected Return=0.02 +2.67 X (0.19 - 0.02)

=0.02 +2.67 X (0.17)

0.02 +0.4539

Required Return=0.47

Therefore Expected Return  for Snap On Inc is 0.47