The stock of Alpha Company has an expected return of 15.5% and a beta of 1.5,and Gamma Company stock has an expected return of 13.4% and a beta of 1.2.Assume the CAPM holds.What's the expected return on the market?

Question

Quizplus · Accepted Answer

Suppose the risk free rate is R_f,and the expected market return is R_m. 15.5% = R_f+1.5(R_m-R_f) 13.4% = R_f+1.2(R_m-R_f) R_f= 5% R_m = 12%

The Stock of Alpha Company Has an Expected Return of 15.5