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A stock has an expected return of 10.45 percent, its beta is .93, and the risk-free rate is 3.6 percent. What must the expected return on the market be?

Answer :

hyderali230

Answer:

Expected market return will be 10.97%

Explanation:

CAPM is method to calculates the expected return value using beta of the investment risk free rate and market premium of that investment.

According to CAPM

Expected Return Rate = Risdt free rate + Beta ( Market risk Premium)

Expected Return Rate = Risdt free rate + Beta ( Market Return - Risk free rate)

10.45% = 3.6% + 0.93 ( Market return - 3.6%)

10.45 - 3.60 = 0.93 ( Market return - 3.6%)

6.85 / 0.93 = Market return - 3.6%

7.37 + 3.60 = Market return

Market Return = 10.97%

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