Question

Carla Vista, Inc., stock has a beta of 1.45. If the expected market return is 17.0 percent and the risk-free rate is 9.0 percent, what does CAPM indicate the appropriate expected return for Carla Vista stock is? (Round answer to 2 decimal places, e.g. 52.75.) Expected return for Carla Vista stock

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Answer #1

Expected return=risk-free rate +Beta*(market rate- risk-free rate )

=9+1.45*(17-9)

which is equal to

=20.6%

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