Question

A stock has a required return of 11.5%, the risk-free rate is 2.7%, and the market risk premium is 7%. What is the stock's beta?

a)1.0
b)1.26
c)1.32
d)None of these are correct
e)0.75

Answer 1

The stock's beta can be calculated using the formula: Beta = (Stock's Required Return - Risk-free Rate) / Market Risk Premium. Given the required return, risk-free rate, and market risk premium, we can substitute these values into the formula to find the beta. The correct answer is a) 1.0.

Step-by-step explanation:

The stock's beta can be calculated using the formula:

Beta = (Stock's Required Return - Risk-free Rate) / Market Risk Premium

Given that the stock's required return is 11.5%, the risk-free rate is 2.7%, and the market risk premium is 7%, we can substitute these values into the formula:

Beta = (11.5% - 2.7%) / 7% = 1.19

Therefore, the correct answer is a) 1.0. None of the other options provided (b) 1.26, c) 1.32, e) 0.75) are correct.