A stock with a beta of 1

Finance Aug 19, 2020

A stock with a beta of 1.7 has an expected rate of return of 15%. If the market return this year turns out to be 6 percentage points below expectations, what is your best guess as to the rate of return on the stock? (Do not round intermediate calculations. Enter your answer as a percent rounded to 1 decimal place.)

Expert Solution

Computation of the rate of return on stock:-

Rate of return = Expected rate of return + (Beta * Market premium)

= 15% + (1.7 * -6%)

= 15% - 10.2%

= 4.8%

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