Sibling Incorporated has a beta of 1. If the expected return on the market is 13%, what is the expected return on Sibling Incorporated's stock?
a. 6.5%
b. cannot be determined without the risk free rate
c. 13%
d. 1%
b. cannot be determined without the risk free rate
As per Capital Asset Pricing Model,
Expected return of stock = Risk free rate + Beta * (Market return - Risk free rate)
In this formula, three elements are required- (1) Risk free rate (2) Beta and (3) Market return.
So, we can not determine expected return without information of risk free rate.
Sibling Incorporated has a beta of 1. If the expected return on the market is 13%,...
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