A stock has an expected return of 18 percent, its beta is 1.45, and the risk-fre

Question

A stock has an expected return of 18 percent, its beta is 1.45, and the risk-free rate is 4 percent. What must the expected return on the market be? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

A stock has an expected return of 18 percent, its beta is 1.45, and the risk-free rate is 4 percent. What must the expected return on the market be? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

Explanation / Answer

Expected return = Rf+×Rp

Rf is risk free return

Rp is risk premium

18% = 4%+1.45×(Rm-4%)

Market expected return, Rm = 13.66%

Related Questions

Navigate

• Browse (All)
• Browse A
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.