What will happen to the expected return on a stock with a Beta of 1.5 and a market risk premium of 9% if the Treasury bill yield increases from 3% to 5%?
A)The expected return will remain unchanged
B)The expected return will increase by 1.0%
C)The expected return will increase by 2.0%
D)The expected return will increase by 3.0% Expected return = 3% + 1.5(9)
= )165
Expected return = 5% + 1.5(9)
= 18.5%

Question

Quizplus · Accepted Answer

The expected return increases by 2.0% because the risk-free rate (Treasury bill yield) increases by 2%, and the expected return is calculated as the risk-free rate plus the product of beta and the market risk premium.

What Will Happen to the Expected Return on a Stock