Your estimate of the market risk premium is 6%. The risk-free rate of return is 5%, and JB HI-Fi has a beta of 1.2. According to the Capital Asset Pricing Model (CAPM), what is its expected return?

Question

Quizplus · Accepted Answer

Using the CAPM formula, the expected return for JB HI-Fi is: 
Expected Return = Risk-free Rate + Beta * Market Risk Premium
Expected Return = 5% + 1.2 * 6%
Expected Return = 12.2% 
Therefore, the correct answer is option D.

Your Estimate of the Market Risk Premium Is 6