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Homework answers / question archive / Calculate the expected return for ABC Inc
Calculate the expected return for ABC Inc. which has a beta of 2.3 when the risk-free rate is 3% and you expect the current equity risk premium to be 7.2%. (1 Mark)
a. 10.2%
b. 12.7%
c. 15.4%
d. 19.6%
Expected return = risk free rate + (beta × market risk premium)
Expected return = 3% + ( 2.3 × 7.2%)
Expected return = 3% + 16.56%
Expected return = 19.56%
Expected return = 19.6%
The correct answer is option d i.e. 19.6%