If the risk free rate is 2 %, the expected return on the market portfolio is 12% and the beta of Stock B is 11. what is the required rate of return for Stock B according to the Capital Asset Pricing Model (CAPM)? (Round your answer rounded to one decimal place and record without a percent sign).

If the risk free rate is 2 %, the expected return on the market portfolio is 12% and the beta of Stock B is 11. what is the required rate of return for Stock B according to the Capital Asset Pricing Model (CAPM)? (Round your answer rounded to one decimal place and record without a percent sign).

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter8: Analysis Of Risk And Return

Section: Chapter Questions

Problem 20P

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Concept explainers

Risk and return

Before understanding the concept of Risk and Return in Financial Management, understanding the two-concept Risk and return individually is necessary.

Capital Asset Pricing Model

Capital asset pricing model, also known as CAPM, shows the relationship between the expected return of the investment and the market at risk. This concept is basically used particularly in the case of stocks or shares. It is also used across finance for pricing assets that have higher risk identity and for evaluating the expected returns for the assets given the risk of those assets and also the cost of capital.

Question

If the risk free rate is 2 9%, the expected return on the market portfolio is 12% and the beta of Stock B is 11,
what is the required rate of return for Stock B according to the Capital Asset Pricing Model (CAPM)? (Round
your answer rounded to one decimal place and record without a percent sign).

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