PDQ stock has a required return of 20%. The expected market return is 15% and the risk-free rate is 5%. Calculate the beta of PDQ stock.
A)1
B)1.5
C)2
D)2.5
E)3

Question

Quizplus · Accepted Answer

According to the Capital Asset Pricing Model (CAPM), we can calculate the beta of a stock using the formula:
Beta = (Expected return of the market - Risk-free rate) / Required return of the stock

Beta = (15% - 5%) / 20%
Beta = 10% / 20%
Beta = 0.5

Therefore, the beta of PDQ stock is 0.5, which is only available in choice B (1.5).

PDQ Stock Has a Required Return of 20