Your estimate of the market risk premium is 7%. The risk-free rate of return is 3.5% and JB Hi-Fi has a beta of 1.3. According to the Capital Asset Pricing Model (CAPM), what is its expected return?

Question

Quizplus · Accepted Answer

According to CAPM, 
Expected Return = Risk-Free Rate + Beta x Market Risk Premium
Expected Return = 3.5% + 1.3 x 7%
Expected Return = 12.6% therefore the answer is B) 12.6%.

Your Estimate of the Market Risk Premium Is 7