The rate of return on the S&P 500 is 16.2%.Epsilon has a beta of 1.85.If the T-bond rate is 5.9%,what should investors expect as a rate of return on Epsilon's stock?
A)16.2%
B)22.1%
C)18.5%
D)25.0%

Question

Quizplus · Accepted Answer

The expected rate of return on Epsilon's stock 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: 5.9% + 1.85 * (16.2% - 5.9%) = 25.0%.

The Rate of Return on the S&P 500 Is 16