Sibling Incorporated has a beta of 1. If the expected return on the market is 13%,...

Question

Question

Sibling Incorporated has a beta of 1. If the expected return on the market is 13%, what is the expected return on Sibling Incorporated's stock?

a. 6.5%

b. cannot be determined without the risk free rate

c. 13%

d. 1%

business finance

Answer 1

Answer #1

b. cannot be determined without the risk free rate

As per Capital Asset Pricing Model,

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

In this formula, three elements are required- (1) Risk free rate (2) Beta and (3) Market return.

So, we can not determine expected return without information of risk free rate.

Answer 2

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