Answer to Question #114913 in Finance for rita dargham

Question #114913
A stock has an expected return of 12.2 percent, the risk-free rate is 6 percent, and the market risk premium is 10 percent. What must the beta of this stock be? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
1
Expert's answer
2020-05-11T20:02:55-0400

Based on the capital asset pricing model the expected rate of return is computed using the following formula:

is the market risk premium.

Substituting the given information in the question to the above formula we get the equation to be:




The beta of the stock must be 0.62.



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