Question

The stock of Ernst Electric has a beta of .87. The market risk premium is 8.6 percent and the risk-free rate is 3.7 percent. What is the expected return on Ernst Electric stock

Answer 1

12.3%

Step-by-step explanation:

The stock Ernst electric has beta of 0.87 percent

The market risk premium is 8.6 percent

The risk free rate is 3.7 percent

Therefore the expected return can be calculated as follows

= risk free rate + risk premium

= 3.7 % + 8.6%

= 12.3 %

Hence the expected rate of return on Ernst electric stock is 12.3%