Question

a stock has a beta of 1.02, the expected return on the market is 12 percent, and the risk-free rate is 3 percent. what must the expected return on this stock be?

Answer 1

The expected return on this stock is 12.18%.

The expected return on the stock can be calculated using the Capital Asset Pricing Model (CAPM) formula:

Expected Return on Stock = Risk-Free Rate + Beta * (Expected Return on Market - Risk-Free Rate)

Plugging in the given values, we get:

Expected Return on Stock = 3% + 1.02 * (12% - 3%) = 12.18%

Therefore, the expected return on the stock that has a beta of 1.02 is 12.18%.