The equity of Big Joe's has a beta a 1.14 and an expected return of 11.6%.The risk-free rate of return is 4%.What is the expected return on the market?
A)7.60%
B)8.04%
C)9.33%
D)10.67%
E)12.16%

Question

Quizplus · Accepted Answer

The expected return on the market can be calculated using the Capital Asset Pricing Model (CAPM) formula: Expected Return = Risk-Free Rate + Beta * (Market Return - Risk-Free Rate). Rearranging the formula to solve for the Market Return gives: Market Return = ((Expected Return - Risk-Free Rate) / Beta) + Risk-Free Rate. Plugging in the values: Market Return = ((11.6% - 4%) / 1.14) + 4% = 10.67%.

The Equity of Big Joe's Has a Beta a 1