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Q6B.

Expert-verified
Found in: Page 225

### Essentials Of Investments

Book edition 9th
Author(s) Zvi Bodie, Alex Kane, Alan Marcus, Alan J. Marcus
Pages 748 pages
ISBN 9780078034695

# What is the expected rate of return for a stock that has a beta of 1 if the expected return on the market is 15%? a. 15%.b. More than 15%.c. Cannot be determined without the risk-free rate.

The correct answer is: Option ‘c’

See the step by step solution

## Definition

The anticipation of an investor to receive a return on investment is known as expected rate of return. It is calculated by multiplying the potential outcomes by the chances that they will occur, and then adding them together,

## Explanation

The formula for expected rate of return = E (r) = rf + β [E(rM -rf)]

In the above scenario, substituting β = 1 and E(rM) = 15%

E (r) = rf + 1[(15 – rf)]

E (r) = 15%

Therefore the correct answer is option ‘a’.