The stock of Hybrid Motors, Inc. has a beta of 0.8. The market risk premium is...
The stock of Hybrid Motors, Inc. has a beta of 0.8. The market risk premium is 10 percent and the risk free rate is 6 percent. What is the expected return on this stock?
Homework Answers
Beta of the stock = β = 0.8
Market Risk premium = RM - RF = 10%
Risk-free rate = RF = 6%
Expected return on the stock is calculated using the CAPM equation
Expected return on stock = E[R] = RF + β*(RM - RF) = 6% + 0.8*10% = 14%
Answer -> Expected return on the stock = 14%
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