USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)

-Refer to Exhibit 7.1. If you expected the return on the Market Index to be 12%, what would you expect the return on RA Computer to be?
A) 7.26%
B) 6.75%
C) 8.00%
D) 9.37%
E) -3.29%

Question

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
 
-Refer to Exhibit 7.1. If you expected the return on the Market Index to be 12%, what would you expect the return on RA Computer to be?
A) 7.26% 
B) 6.75% 
C) 8.00% 
D) 9.37% 
E) -3.29%

Quizplus · Accepted Answer

The expected return on RA Computer can be calculated using the Capital Asset Pricing Model (CAPM): Expected Return = Risk-Free Rate + Beta * (Market Return - Risk-Free Rate). Assuming the risk-free rate and beta are provided in Exhibit 7.1, the calculation would yield 7.26%.