A stock has an expected return of 15 percent, its beta is 0.75, and the risk-free...

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A stock has an expected return of 15 percent, its beta is 0.75, and the risk-free rate is 8.25 percent. What must the expecte

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Answer 1

Answer #1

Answer is 17.25%

Expected Return of Stock = 15.00%
Beta = 0.75
Risk-free Rate = 8.25%

Expected Return of Stock = Risk-free Rate + Beta * (Expected Return on Market - Risk-free Rate)
0.1500 = 0.0825 + 0.75 * (Expected Return on Market - 0.0825)
0.0675 = 0.75 * (Expected Return on Market - 0.0825)
0.0900 = Expected Return on Market - 0.0825
Expected Return on Market = 0.1725 or 17.25%

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Answer 2

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