The expected return on Kiwi Computers shares is 16.6 per cent. If the risk-free rate is 4 per cent and the expected return on the market is 10 per cent, then what is Kiwi's beta?
A) 1.26
B) 2.10
C) 2.80
D) 3.15

Question

Quizplus · Accepted Answer

The Capital Asset Pricing Model (CAPM) formula is: 
Expected Return on a Security = Risk-Free Rate + Beta x (Expected Market Return - Risk-Free Rate)

Using the formula, we can calculate the beta of Kiwi Computers as follows: 
16.6% = 4% + Beta x (10% - 4%) 
12.6% = Beta x 6% 
Beta = 2.1

Therefore, the answer is B: 2.10.

The Expected Return on Kiwi Computers Shares Is 16