Given the following information, determine the beta coefficient for Stock L that is consistent with equilibrium: = 8%; rRF = 3

Finance Oct 19, 2020

Given the following information, determine the beta coefficient for Stock L that is consistent with equilibrium: = 8%; rRF = 3.75%; rM = 8.5%. Round your answer to two decimal places.

Expert Solution

Computation of Beta Coefficient of Stock L using CAPM model:

Required Return= Rf+ Beta ( Rm-Rf)

8% = 3.75% + Beta( 8.5%-3.75%)

8%= 3.75% + Beta*4.75%

8%-3.75% = Beta*4.75%

4.25% = Beta*4.75%

Beta = 4.25%/4.75%

Beta = 0.89

Beta Coefficient of Stock L= 0.89

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