Suppose that the Hu's Corporation common stock has a beta of 2.3. If the risk-free rate is 6% and the market risk premium is 5%,the expected return on Hu's common stock is:
A) 5.0%.
B) 6.8%.
C) 10.5%.
D) 15.2%.
E) 17.5%.

Question

Quizplus · Accepted Answer

The expected return on Hu's common stock can be calculated using the Capital Asset Pricing Model (CAPM):
Expected return = Risk-free rate + Beta x (Market risk premium)
= 6% + 2.3 x 5%
= 6% + 11.5%
= 17.5%
Therefore, the expected return on Hu's common stock is 17.5%. The best choice is E.

Suppose That the Hu's Corporation Common Stock Has a Beta