Suppose the beta of Amazon is 2.2, the risk-free rate is 5.5 percent, and the market risk premium is 8 percent. Calculate the expected rate of return for Amazon.
A)15.8 percent
B)14.3 percent
C)35.2 percent
D)23.1 percent

Question

Quizplus · Accepted Answer

The formula to calculate the expected rate of return is:

Expected Rate of Return = Risk-Free Rate + Beta * Market Risk Premium

Expected Rate of Return = 5.5% + 2.2 * 8%

Expected Rate of Return = 5.5% + 17.6%

Expected Rate of Return = 23.1%

Therefore, the expected rate of return for Amazon is 23.1%, which is option D.

Suppose the Beta of Amazon Is 2