Suppose the Barges Corporation's common stock has an expected return of 12%. Assume that the risk-free rate is 5%, and the market risk premium is 6%. If no unsystematic influence affected Barges' return, the beta for Barges is:
A) 1.00.
B) 1.17.
C) 1.20.
D) 2.50.

Question

Quizplus · Accepted Answer

The beta can be calculated using the Capital Asset Pricing Model (CAPM) formula: Expected Return = Risk-Free Rate + Beta * Market Risk Premium. Plugging in the given values: 12% = 5% + Beta * 6%. Solving for Beta gives: Beta = (12% - 5%) / 6% = 7% / 6% = 1.17.

Suppose the Barges Corporation's Common Stock Has an Expected Return