Question

A stock has a beta of 1.6, the expected return on the market is 15 percent, and the risk-free rate is 6 percent. What must the expected return on this stock be? o 30% О 19.38% О 21.42% o 20.4% О 21.22%

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Answer #1

D. 20.4%

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

Expected return = 6% + 1.6(15% - 6%)

Expected return = 20.4%

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