CIBC stock has a beta of 1.2.If the risk-free rate is 1.8%,and the market risk premium is 6.5%,what is the expected return of CIBC stock,according to the CAPM?

Question

Quizplus · Accepted Answer

The CAPM formula is: Expected Return = Risk-Free Rate + Beta x Market Risk Premium.

Plugging in the given values: 
Expected Return = 1.8% + 1.2 x 6.5% 
Expected Return = 1.8% + 7.8% 
Expected Return = 9.6%

Therefore, the expected return of CIBC stock according to the CAPM is 9.6%. The answer is (C).

CIBC Stock Has a Beta of 1