contestada

The risk-free rate and the expected market rate of return are 6% and 16%, respectively. According to the capital asset pricing model, the expected rate of return on security X with a beta of 1.2 is equal to ________.

Respuesta :

ahmedgodtrust

Answer: ER(X) = Rf + β(Rm-Rf)

               ER(X) = 6 + 1.2(16-6)

               ER(X) = 6 + 1.2(10)

               ER(X) = 6 + 12

               ER(X) = 18%

Explanation: The expected return on a stock equals risk-free rate plus the product of Beta and risk premium. Risk premium is the difference between market return(Rm) and risk-free rate(Rf). The expected rate of return on security X is 18%.

Otras preguntas

Q&A Education