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[answered] A stock has a beta of 1.38, the expected return on the mark


A stock has a beta of 1.38, the expected return on the market is 10 percent, and the risk-free rate is 5.0 percent. What must the expected return on this stock be? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))
Answer:

 

Calculation of Expected returns using CAPM model formula:

 

Expected Return = Risk Free rate + Beta * (Return on market - Risk Free rate)

 

Hence,

 

Expected Return = 3.5 + 1.04*(10-3.5) = 10.26%

 


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