In the CAPM, a stock has a beta coefficient of 0.5.The average returns to all stocks in the market is 8%.If the interest rate on three-month T-bills is at around 3 percent, what is the expected return to this stock? Assume that unsystematic risk is zero.

Question

Quizplus · Accepted Answer

The expected return to the stock can be calculated using CAPM as follows:

Expected return = Risk-free rate + Beta*(Market return - Risk-free rate)

= 3 + 0.5*(8-3)
= 3+ 2.5
= 5.5%

Therefore, the expected return to this stock is 5.5%, which is option C.

In the CAPM, a Stock Has a Beta Coefficient of 0.5.The