The return on treasury notes is expected to be 7.5%.The market risk premium is 8%.What is the expected return on a stock with a beta of 1.3?
A)12.95%
B)12.35%
C)7.25%
D)17.90%

Question

Quizplus · Accepted Answer

The expected return on a stock can be calculated using the Capital Asset Pricing Model (CAPM): Expected Return = Risk-Free Rate + Beta * Market Risk Premium. Here, the risk-free rate is 7.5%, the beta is 1.3, and the market risk premium is 8%. So, Expected Return = 7.5% + 1.3 * 8% = 17.9%.

The Return on Treasury Notes Is Expected to Be 7