Question

The risk-free rate and the expected market rate of return are 6% and 16% respectively. According to the capital asset pricing model, the expected rate of return on security X with a beta of 1.2 is equal to _________.
A. 12%
B. 23%
C. 18%
D. 17%

Answer 1

Answer:

c

Explanation:

According to the capital asset price model: Expected rate of return = risk free + beta x (market rate of return - risk free rate of return)

6 + 1.2(16 - 6)

= 6 + (1.2 x 10)

6 + 12 = 18