The stock of United Industries has a beta a 138 and an expec

The stock of United Industries has a beta a 1.38 and an expected return of 11.8. The risk-free rate of return is 4 percent. What is the expected return on the market? 8.90 7.80 8.07 12.58 9.65

Solution

expected return = risk-free rate +Beta*(MArket rate- risk-free rate )

11.8=4+1.38*(Market rate-4)

(11.8-4)=1.38*(Market rate-4)

Market rate=(11.8-4)/1.38+4

=9.65%(Approx).