The risk-free rate of return is 4% and the market risk premium is 8%. What is the expected rate of return on a stock with a beta of 1.28?
A) 9.12%
B) 10.24%
C) 13.12%
D) 14.24%
E) 15.36%

Question

Quizplus · Accepted Answer

The expected rate of return can be calculated using the Capital Asset Pricing Model (CAPM), which is:

Expected Return = Risk-free rate + Beta x (Market risk premium)

Expected Return = 4% + 1.28 x 8%
Expected Return = 4% + 10.24%
Expected Return = 14.24%

Therefore, the expected rate of return on a stock with a beta of 1.28 is 14.24%. The best choice is D.

The Risk-Free Rate of Return Is 4% and the Market