According to the CAPM, what is the expected market return given an expected return on a security of 15.8%, a share beta of 1.2, and a risk-free interest rate of 5.0%?

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Quizplus · Accepted Answer

The CAPM formula is: Expected Return = Risk-Free Rate + Beta * (Market Return - Risk-Free Rate). Rearranging to find the Market Return: Market Return = (Expected Return - Risk-Free Rate) / Beta + Risk-Free Rate. Substituting the given values: Market Return = (15.8% - 5.0%) / 1.2 + 5.0% = 14.0%.

According to the CAPM, What Is the Expected Market Return