A stock has an expected return of 10.0 percent, a beta of 1.30, and the return...

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Question

A stock has an expected return of 10.0 percent, a beta of 1.30, and the return on the market is 9.50 percent. What must the r

Answer 1

Answer #1

Expected return=risk free rate+beta*(market rate-risk free rate)

10=risk free rate+1.3*(9.5-risk free rate)

10=risk free rate+12.35-1.3*risk free rate

risk free rate=(12.35-10)/(1.3-1)

=7.83%(Approx).

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Answer 2

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