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Problem 12-23 CAPM and Expected Return (LO2) If the expected rate of return on the market...

Problem 12-23 CAPM and Expected Return (LO2)

If the expected rate of return on the market portfolio is 12% and T-bills yield 4%, what must be the beta of a stock that investors expect to return 9%? (Round your answer to 4 decimal places.)
  Beta of a stock   
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Answer #1

As per CAPM

Stock Expected Return = Risk free rate + Beta* (Return of market portfolio - Risk free rate)

9% = 4% + Beta*(12%-4%)

5% = Beta*(8%)

Beta = 0.625

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