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What rate of return should an investor expect for a stock that has a beta of...

What rate of return should an investor expect for a stock that has a beta of 1.25 when the market is expected to yield 14% and Treasury bills offer 6%?
A. 10.0%
B. 11.2%
C. 12.4%
D. 16.0%

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Answer #1

Rate of return = Risk free rate + beta (market return - risk free rate)

Rate of return = 0.06 + 1.25 (0.14 - 0.06)

Rate of return = 0.06 + 0.1

Rate of return = 0.16 or 16.0%

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