Question

K.J. Lee, CFA, an analyst with Water's Edge Securities, estimates the market risk premium is 6.80% and the risk-free rate is 2.10%. She's calculated the beta for Summerfield Tech as 0.94, and she estimates the expected return is:

Answer 1

The Expected return is 8.492%

Step-by-step explanation:

The computation of the expected return is shown below:

Expected return is

= Risk free rate + Beta × market risk premium

= 2.10% + 0.94 × 6.80%

= 2.10% + 6.392%

= 8.492%

Hence, the Expected return is 8.492%

We simply applied the above formula

and, the same is to be considered

By considering all the information given in the question