Altria Group Inc. (ticker: MO on NYSE)is an American manufacturer of tobacco products. Selected Financial information for Altria is provided in the table below. What is the expected return on shares of Altria using the SML? $$\begin{array} { | c | c | c | }
\hline \text { Asset } & \begin{array} { c }
\text { Expected } \
\text { Return }
\end{array} & \text { Beta } \
\hline \text { Altria } & & 0.5 \
\hline \text { Risk Free Asset } & 5 \% & 0 \
\hline \begin{array} { c }
\text { Market } \
\text { Portfolio }
\end{array} & 10 \% & 1 \
\hline
\end{array}$$

Question

Altria Group Inc. (ticker: MO on NYSE)is an American manufacturer of tobacco products. Selected Financial information for Altria is provided in the table below. What is the expected return on shares of Altria using the SML? $$\begin{array} { | c | c | c | } 
\hline \text { Asset } & \begin{array} { c } 
\text { Expected } \
\text { Return }
\end{array} & \text { Beta } \
\hline \text { Altria } & & 0.5 \
\hline \text { Risk Free Asset } & 5 \% & 0 \
\hline \begin{array} { c } 
\text { Market } \
\text { Portfolio }
\end{array} & 10 \% & 1 \
\hline
\end{array}$$

Quizplus · Accepted Answer

The expected return using the Security Market Line (SML) is calculated as: Risk-Free Rate + Beta * (Market Return - Risk-Free Rate). Here, it is 5% + 0.5 * (10% - 5%) = 7.5%.

Altria Group Inc A)50% B)7

Altria Group Inc A)50%
B)7