Answer:
r or expected rate of return = 0.1077 or 10.77%
Explanation:
Using the CAPM, we can calculate the required/expected rate of return on a stock. This is the minimum return required by the investors to invest in a stock based on its systematic risk, the market's risk premium and the risk free rate.
The formula for required rate of return under CAPM is,
r = rRF + Beta * rpM
Where,
- rRF is the risk free rate
- rpM is the market risk premium
r = 0.051 + 0.9 * 0.063
r or expected rate of return = 0.1077 or 10.77%
