Question

The risk-free rate of return is 5% and the market risk premium is 7%. What is the expected rate of return on a stock with a beta of 1.56?
a. 15.92%
b. 10.23%
c. 12%

Answer 1

Answer: a. 15.92%

Explanation:

Using the Capital Asset Pricing Model, the expected return is;

= Risk free rate + beta * Market premium

= 5% + 1.56 * 7%

= 15.92%