A stock has a beta of 25. The expected return on the market is 14%, and...

Question

Question

A stock has a beta of 25. The expected return on the market is 14%, and the risk-free rate is 5.2%. What must the expected return on this stock be?

Please show all work

Answer 1

Answer #1

Expected return on this stock = Risk-free rate + Beta(Expected return on the market - Risk-free rate)

Expected return on this stock = 0.052 + 2.5(0.14 - 0.052)

Expected return on this stock = 0.272 or 27.2%

Answer 2

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