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1 March, 22:03

Investors expect the market rate of return this year to be 10%. The expected rate of return on a stock with a beta of 1.2 is currently 12%. If the market return this year turns out to be 8%, how would you revise your expectation of the rate of return on the stock

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  1. 2 March, 00:41
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    Answer: 9.6%

    Explanation:

    Expected rate of return on the stock will change by beta times the unanticipated

    change in the market return:

    1.2 (.08 -.10) = - 2.4%

    • Therefore, the expected rate of return on the stock should be revised to:

    .12 -.024 = 9.6%
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