Assume that the risk-free rate of return is 4%, and the expected return on the market portfolio is 10%. If the systematic risk inherent in the stock of ABC Corporation is 1.80, using the Capital Asset Pricing Model (CAPM) calculate the expected return of ABC.
A)14.0%
B)14.8%
C)16.0%
D)16.8%

Question

Quizplus · Accepted Answer

The expected return of ABC can be calculated using the CAPM formula:Expected return = Risk-free rate + Beta * (Expected market return - Risk-free rate)Expected return = 4% + 1.80 * (10% - 4%)Expected return = 4% + 1.80 * 6%Expected return = 4% + 10.8%Expected return = 14.8%

Assume That the Risk-Free Rate of Return Is 4%, and the Expected