Tanzlin Manufacturing's common stock has a beta of 1.5. If the expected risk-free return is 2% and the expected return on the market is 14%, what is the expected return on the stock?
A) 13.5%
B) 21.0%
C) 16.8%
D) 20.0%

Question

Quizplus · Accepted Answer

The formula for the expected return on a stock is:

Expected return on stock = Risk-free rate + Beta*(Expected market return - Risk-free rate)

Plugging in the given values, we get:

Expected return on stock = 2% + 1.5*(14% - 2%) = 20%

Therefore, the expected return on Tanzlin Manufacturing's common stock is 20%. The correct answer is choice D.

Tanzlin Manufacturing's Common Stock Has a Beta of 1