The reward-to-risk ratio is 6.0% and the risk-free rate is 1.4%. What is the expected return on a risky asset if the beta of that asset is 1.30?
A)8.23%
B)8.40%
C)9.20%
D)10.23%
E)11.30%

Question

Quizplus · Accepted Answer

The expected return on a risky asset can be calculated using the Capital Asset Pricing Model (CAPM): Expected Return = Risk-Free Rate + Beta * (Market Return - Risk-Free Rate). Here, the reward-to-risk ratio is given as 6.0%, which is the market risk premium. Therefore, Expected Return = 1.4% + 1.30 * 6.0% = 9.20%.

The Reward-To-Risk Ratio Is 6