Decker Corp.common stock has a required return of 17.5% and a beta of 1.75.If the expected risk free return is 3%,what is the expected return for the market based on the CAPM?
A) 11.29%
B) 14.29%
C) 13.35%
D) 15.27%

Question

Quizplus · Accepted Answer

The correct answer is A.The CAPM formula is:Expected return = Risk-free rate + Beta * (Expected market return - Risk-free rate)Plugging in the given values, we get:17.5% = 3% + 1.75 * (Expected market return - 3%)14.5% = 1.75 * (Expected market return - 3%)Expected market return - 3% = 8.29%Expected market return = 11.29%