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Homework answers / question archive / The common stock of New Firm has an expected return of 16
The common stock of New Firm has an expected return of 16.74 percent. The risk-free rate is 4 percent and the market risk premium is 9 percent. What is the beta of New Firm stock?
Beta of New Firm stock using CAPM formula:
E(r) = RFR + 
* Market risk premium
Given;
E(r) = Expected return = 16.74%
RFR = Risk-free rate = 4%
= Beta for stock
Market risk premium = 9%
16.74% = 4% + * 9%
(16.74% - 4%) / 9% =
= 1.41555556
Beta of New Firm stock is 1.41555556
