A stock has an expected return of 11

Finance Aug 16, 2020

A stock has an expected return of 11.6%, its beta is .91, and the risk free rate is 5.8%. What must the expected return on the market be? (provide answer as a percent rounded to 2 decimal places e.g., 52.41%)

Expert Solution

Computation of the expected return on the market:-

Expected return on market = Risk free rate + Beta * (Market return - Risk free rate)

= 5.8% + 0.91 * (11.6% - 5.8%)

= 5.8% + (0.91 * 5.8%)

= 5.8% + 5.28%

= 11.08%

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