The risk-free rate is 5%, the market risk premium is 8%, and the market return is 13%. Stock Y's beta is 1.85 and the standard deviation of its returns is 62.5%. What should be the stock's expected rate of return to make the investor indifferent toward buying or selling the stock?
A) 11.66%
B) 12.82%
C) 15.54%
D) 12.50%
E) 19.80%

Question

Quizplus · Accepted Answer

The expected rate of return can be calculated using the Capital Asset Pricing Model (CAPM): Expected Return = Risk-Free Rate + Beta * Market Risk Premium. Plugging in the values: 5% + 1.85 * 8% = 19.80%.

The Risk-Free Rate Is 5%, the Market Risk Premium Is