A stock has an expected return of 11 percent, its beta is .85, and the risk-free rate is 5.5 percent. The expected return on the market be = 15.23%
The anticipated profit or loss on an investment with known historical return rates is known as the expected return (RoR). It is determined by dividing possible results by the likelihood that they will occur, adding the results, and then subtracting the results.
To calculate expected return,
R = Rf + Beta * (Rm - Rf)
.12 = .06 + 0.65 * (Rm - .06)
0.12 = 0.06 + 0.65Rm - 0.039
-0.65Rm = 0.06 - 0.12 - 0.039
(-0.65Rm)/-0.65 = (0.06 - 0.12 - 0.039)/-0.65
Rm = (-0.099)/-0.65
=0.1523076923 x 100
= 15.23%
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