Given Gitech's beta of 1.55 and a risk-free rate of 8 percent, what is the expected rate of return assuming a 14 percent market return?
A) 12.4 percent
B) 14.3 percent
C) 17.3 percent
D) 20.4 percent
E) 29.7 percent

Question

Quizplus · Accepted Answer

Using the Capital Asset Pricing Model (CAPM), the expected rate of return can be calculated as follows: 
Expected Rate of Return = Risk-Free Rate + Beta*(Market Return - Risk-Free Rate) 
Expected Rate of Return = 8% + 1.55(14% - 8%) 
Expected Rate of Return = 8% + 1.55(6%) 
Expected Rate of Return = 8% + 9.3% 
Expected Rate of Return = 17.3% 
Therefore, the expected rate of return for Gitech is 17.3 percent. Therefore, the correct choice is C.

Given Gitech's Beta of 1