Suppose that the Simmons Corporation's common stock has a beta of 1.6. If the risk-free rate is 5% and the market risk premium is 4%, the expected return for Simmons' common is:
A) 4.0%.
B) 5.0%.
C) 5.6%.
D) 10.6%.
E) 11.4%.

Question

Quizplus · Accepted Answer

The expected return can be calculated using the Capital Asset Pricing Model (CAPM): Expected Return = Risk-Free Rate + Beta * Market Risk Premium = 5% + 1.6 * 4% = 11.4%.

Suppose That the Simmons Corporation's Common Stock Has a Beta