Question

Cullumber, Inc., stock has a beta of 1.30. If the expected market return is 12.5 percent and the risk-free rate is 9.0 percent, what does CAPM indicate the appropriate expected return for Cullumber stock is

Answer 1

Answer:

25.3%

Explanation:

Cullumber incorporation stock has a beta of 1.30

The expected market return is 12.5

The risk free rate is 9.0

Therefore the expected return for cullumber stock can be calculated as follows

= 9% + (1.3% × 12.5%)

= 9% + 16.25%

= 25.3%

Hence the expected return of cullumber stock is 25.3%