Calculate the expected return for C Inc., which has a beta of 0.8 when the risk-free rate is 0.04 and you expect the market return to be 0.12.
A) 8.10 percent
B) 9.60 percent
C) 10.40 percent
D) 11.20 percent
E) 12.60 percent

Question

Quizplus · Accepted Answer

The expected return can be calculated using the Capital Asset Pricing Model (CAPM):
Expected return = risk-free rate + beta * (market return - risk-free rate)
= 0.04 + 0.8 * (0.12 - 0.04)
= 0.04 + 0.064
= 0.104 or 10.40%
Therefore, the correct answer is option C.

Calculate the Expected Return for C Inc