A. The risk-free rate is 2.05% and the market risk premium is 6.07%. A stock with a β of 1.23 will have an expected return of ____%.
B. The risk-free rate is 2.66% and the expected return on the market 7.48%. A stock with a β of 1.00 will have an expected return of ____%.
C. A stock has an expected return of 17.00%. The risk-free rate is 1.18% and the market risk premium is 6.12%. What is the β of the stock?
Round to 2 decimal places and show calculation step by steps or hand written step by steps please :)
A. The expected return is computed as shown below:
= Risk free rate + Beta x Market risk premium
= 0.0205 + 1.23 x 0.0607
= 9.52% Approximately
B. The expected return is computed as shown below:
= Risk free rate + Beta x (Return on market - Risk free rate)
= 0.0266 + 1 x ( 0.0748 - 0.0266)
= 7.48%
C. The Beta of the stock is computed as shown below:
Expected return = risk free rate + Beta x Market risk premium
0.17 = 0.0118 + Beta x 0.0612
Beta = 2.58 Approximately
Feel free to ask in case of any query relating to this question
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