Problem 11-15 Using CAPM [LO 4] A stock has an expected return of 11 percent, it
ID: 2715106 • Letter: P
Question
Problem 11-15 Using CAPM [LO 4]A stock has an expected return of 11 percent, its beta is 0.85, and the risk-free rate is 5.5 percent. Required: What must the expected return on the market be? (Do not round intermediate calculations. Enter your answer as a percentage rounded to 2 decimal places Problem 11-15 Using CAPM [LO 4]
A stock has an expected return of 11 percent, its beta is 0.85, and the risk-free rate is 5.5 percent. Required: What must the expected return on the market be? (Do not round intermediate calculations. Enter your answer as a percentage rounded to 2 decimal places Problem 11-15 Using CAPM [LO 4]
A stock has an expected return of 11 percent, its beta is 0.85, and the risk-free rate is 5.5 percent. Required: What must the expected return on the market be? (Do not round intermediate calculations. Enter your answer as a percentage rounded to 2 decimal places
Explanation / Answer
expected return on stock = Rf + [Beta* (Rm-Rf)]
11 = 5.5 + [.85 (Rm- 5.5 ) ]
11 -5.5 = .85 (Rm-5.5 )
5.5 = .85 (Rm -5.5)
Rm -5.5 = 5.5 /.85
Rm = 6.4706 + 5.5
= 11.97%