Using the formula for the security market line (Formula 21-7),if the risk-free rate (R_F)is 6%,the market rate of return (K_M)is 12% and the beta ($\beta$_i)is 1.2,compute the anticipated return for stock i (K_i).

Question

Quizplus · Accepted Answer

The correct answer is A. The formula for the security market line (SML) is:K_i = R_F + $\beta$_i * (K_M - R_F)where:K_i is the anticipated return for stock iR_F is the risk-free rate$\beta$_i is the beta of stock iK_M is the market rate of returnPlugging in the given values, we get:K_i = 6% + 1.2 * (12% - 6%)K_i = 6% + 1.2 * 6%K_i = 6% + 7.2%K_i = 20.4%Therefore, the anticipated return for stock i is 20.4%.

Using the Formula for the Security Market Line (Formula 21-7),if β\betaβ

Using the Formula for the Security Market Line (Formula 21-7),if $\beta$