The security market line If the expected return on the marke

The security market line: If the expected return on the market is 10 percent and the risk-free rate is 4 percent,what is the expected return for a stock with a beta equal to 1.5? What is the market risk premium for the set of circumstances described? Please work out in detail

Solution

Market risk premium=expected return on market-risk free rate=10%-4%=6%

Expected return of a stock=risk free rate+beta*market risk premium=4%+1.5*6%=13%