Suppose you forecast that the market index will earn a return of 12% in the coming year.Treasury bills are yielding 4%.The unadjusted β of Mobil stock is 1.50.A reasonable forecast of the return on Mobil stock for the coming year is _________ if you use a common method to derive adjusted betas.
A)15.0%
B)15.5%
C)16.0%
D)14.6%

Question

Quizplus · Accepted Answer

Adjusted beta = 2/3(1.5) + 1/3 = 1.33; E(r_M) = 4% + 1.33(8%) = 14.6%.

Suppose You Forecast That the Market Index Will Earn a Return