A stock has an expected return of 14 percent, its beta is 1.60, and the risk-free rate is 4.8 percent. What must the expected return on the market be? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e. g., 32.16.)

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6 January, 13:20

A stock has an expected return of 14 percent, its beta is 1.60, and the risk-free rate is 4.8 percent. What must the expected return on the market be? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e. g., 32.16.)

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Caleb Barrera · Answer 1

Expected Market Return = 10.55%

Explanation:

Using CAPM equation

Required rate of return = Rf + (Rm - Rf) x Beta

14% = 4.8% + (Rm - 4.8%) x 1.6

14% - 4.8% = 1.6 Rm - 7.68%

9.2% + 7.68% = 1.6 Rm

16.88% = 1.6 Rm

Rm = 16.88% / 1.6

Rm = 10.55%