The stock of Big Joes has a beta of 134 and an expected retu

The stock of Big Joe\'s has a beta of 1.34 and an expected return of 11.80 percent. The risk-free rate of return is 4.3 percent. What is the expected return on the market? 7.50 percent 13.26 percent O 9.90 percent 6.04 percent O 8.56 percent

Solution

Beta = 1.34
Expected Return = 11.80%
Risk-free Rate = 4.30%

Expected Return = Risk-free Rate + Beta * (Market Return - Risk-free Rate)
11.80% = 4.30% + 1.34 * (Market Return - 4.30%)
7.50% = 1.34 * (Market Return - 4.30%)
5.60% = Market Return - 4.30%
Market Return = 9.90%

So, expected return on the market is 9.90%