Assume that a security is fairly priced and has an expected rate of return of 0.17. The market expected rate of return is 0.11, and the risk-free rate is 0.04. The beta of the stock is
A) 1.25.
B) 1.86.
C) 1.
D) 0.95.

Question

Quizplus · Accepted Answer

The beta of the stock can be calculated using the Capital Asset Pricing Model (CAPM) formula: Expected Return = Risk-Free Rate + Beta * (Market Return - Risk-Free Rate). Rearranging the formula to solve for Beta gives: Beta = (Expected Return - Risk-Free Rate) / (Market Return - Risk-Free Rate). Plugging in the given values: Beta = (0.17 - 0.04) / (0.11 - 0.04) = 0.13 / 0.07 = 1.86.

Assume That a Security Is Fairly Priced and Has an Expected