Question 1 Centex Energy has a beta of 143 Assume that riskf

Question 1 Centex Energy has a beta of 1.43. Assume that risk-free rate and the expected rate of return on the market are 2% and 12% asset pricing model (CAPM), what is the expected rate of return for this company\'s stock espectively. According to the capit Your answer should be between 11.45 and 18.55, rounded to 2 decimal places, with no special characters

Solution

According to Capital Asset Pricing Model

Expected Rate of Return = Rf + b ( Rm – Rf )

Where,

Rf – Risk free return (here 2%)

b – Beta (here 1.43)

Rm – Expected return on market (here 12%)

Expected Rate of Return = Rf + b ( Rm – Rf )

= 2 + 1.43 * (12-2)

= 2 + 14.3

Expected Rate of Return = 16.30