Your estimate of the market risk premium is 6%.The risk-free rate of return is 5%,and General Motors has a beta of 1.2.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 (GM) is equal to the risk-free rate plus the product of the market risk premium and the security's beta. 
Expected return = 5% + (1.2 x 6%) = 12.2%
Therefore, the best choice is D.

Your Estimate of the Market Risk Premium Is 6