Question

Bama Entertainment has common stock with a beta of 1.22. The market risk premium is 8.1 percent and the risk-free rate is 3.9 percent. What is the expected return on this stock?
a) 13.31 percent
b) 12.67 percent
c) 12.40 percent
d) 13.78 percent
e) 14.13 percent

Answer 1

Answer:

The answer is "Option d"

Explanation:

$ER= RFR+ Beta \ stock \ (P)\\\\ER= Annual \ return\\\\RFR = Risk \ free \ interest \ rate =3.9\%\\\\Beta= beta \ of \ stock = 1.22\\\\P= market\ premium=8.1\%$

Putting the value into the formula:

$ER=3.9 + 1.22 (8.1)$

     $= 13.78\%$