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14 September, 06:24

Consider an asset that has a beta of 1.25. If the risk free rate is 3.25 and the mrket risk premium is 5.5% caculate the expected return on the asset.

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  1. 14 September, 08:23
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    10.125%

    Explanation:

    The formula to compute the expected return on the asset is shown below:

    Expected return on the asset = Risk-free rate of return + Beta * (Market rate of return - Risk-free rate of return)

    = 3.25% + 1.25 * 5.5%

    = 3.25% + 6.875%

    = 10.125%

    The (Market rate of return - Risk-free rate of return) is also known as the market risk premium and the same is used in the computation part
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