Assume that the risk-free rate of return is 4 percent,and the expected return on the market portfolio is 10 percent.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.

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Quizplus · Accepted Answer

The CAPM formula is: Expected Return = Risk-Free Rate + Beta * (Market Return - Risk-Free Rate). Plugging in the values: Expected Return = 4% + 1.80 * (10% - 4%) = 4% + 1.80 * 6% = 4% + 10.8% = 14.8%.

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