A stock has a beta of 135 the expected return on the market

A stock has a beta of 1.35, the expected return on the market is 11 percent, and the risk-free rate is 4.4 percent. What must the expected return on this stock be?

Answers:

a. 13.84%

b. 13.31%

c. 19.25%

d. 12.64%

e. 13.98%

Solution

the expected return on this stock = 4.4% + 1.35*(11% - 4.4%)

the expected return on this stock = 13.31%