What is the required rate of return on a stock with a beta of 1.0, when...
What is the required rate of return on a stock with a beta of 1.0, when the risk-free rate is 7% and the rate on the stock market is 15% 2 pts
Should you buy the stock in question 2 if its forecasted return is 20%?
Homework Answers
| As per CAPM |
| expected return = risk-free rate + beta * (expected return on the market - risk-free rate) |
| Expected return% = 7 + 1 * (15 - 7) |
| Expected return% = 15 |
Yes buy the stock as the forecasted return is more than the required rate of 15%
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