Assume that the risk-free rate of return is 4%,and the expected return on the market portfolio is 10%.If the expected return of ABC is 12% the firm's beta calculate using the Capital Asset Pricing Model (CAPM).
A)1
B)1.25
C)1.33
D)1.5

Question

Quizplus · Accepted Answer

The correct answer is C.The CAPM formula is:Expected return = Risk-free rate + Beta * (Expected market return - Risk-free rate)Plugging in the given values, we get:12% = 4% + Beta * (10% - 4%)12% = 4% + Beta * 6%8% = Beta * 6%Beta = 8% / 6%Beta = 1.33

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