What rate of return should an investor expect for a stock that has a Beta of 0.8 when the market is expected to yield 14% and Treasury bills offer 6%?
A)9.2%
B)11.2%
C)12.4%
D)12.8%

Question

Quizplus · Accepted Answer

The correct answer is C because the expected rate of return for a stock with a Beta of 0.8 when the market is expected to yield 14% and Treasury bills offer 6% is 12.4%. This is calculated using the Capital Asset Pricing Model (CAPM), which states that the expected rate of return for a stock is equal to the risk-free rate plus the Beta of the stock multiplied by the expected market return. In this case, the risk-free rate is 6%, the Beta of the stock is 0.8, and the expected market return is 14%. Therefore, the expected rate of return for the stock is 6% + 0.8 * (14% - 6%) = 12.4%.

What Rate of Return Should an Investor Expect for a Stock