7.1 If the risk-free rate of return is 3.9% and the market risk premium is 6.2%, what is the expected return on a stock with a beta of 1.21? E(r) =- 0
Expert Answer
Rf = 3.9%
Beta = 1.21
Market risk premium = Rm-Rf = 6.2%
Expected Return = risk free rate + Beta(Market return – risk free rate)
Re= Rf + Beta(Rm-Rf)
= 3.9 + 1.21*6.2
= 11.402%