You are considering an investment in First Allegiance Corp.The firm has a beta of 1.6.Currently,U.S.Treasury bills are yielding 2.75% and the expected return for the S & P 500 is 14%.What rate of return should you expect for your investment in First Allegiance?
A) 11.15%
B) 15.39%
C) 16.75%
D) 20.75%

Question

Quizplus · Accepted Answer

The expected return can be calculated using the Capital Asset Pricing Model (CAPM): Expected Return = Risk-Free Rate + Beta * (Market Return - Risk-Free Rate). Plugging in the values: 2.75% + 1.6 * (14% - 2.75%) = 20.75%.

You Are Considering an Investment in First Allegiance Corp