expected return question

label Business
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schedule 1 Day
account_balance_wallet $5

A stock has an expected return of 12.4 percent, its beta is 1.17, and the risk-free rate is 4.2 percent. What must the expected return on the market be? 

Jul 13th, 2015

Thank you for the opportunity to help you with your question!

ki = return on asset i

kRF = risk-free rate

kM = market return

bi = beta for asset i

kM - kRF = market risk premium

ki = kRF +(kM - kRF)bi 

0.124 = 0.042 + (km-0.042)*1.17

0.124- 0.042 = (km-0.042)*1.17

(km-0.042)*1.17 = 0.082

(km-0.042) = 0.0701

km = 0.1121


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Jul 13th, 2015

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