Your estimate of the market risk premium is 7%.The risk-free rate of return is 3.5% and General Motors has a beta of 1.3.According to the Capital Asset Pricing Model (CAPM),what is its expected return?

Question

Quizplus · Accepted Answer

According to CAPM, the expected return of a security equals the risk-free rate plus the product of its beta and the market risk premium. Using the given values:

Expected return = 3.5% + (1.3 x 7%) = 12.6%

Therefore, the closest choice is C (12.6%).

Your Estimate of the Market Risk Premium Is 7