Q6B.

Expert-verifiedFound in: Page 225

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’

**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,**

The formula for expected rate of return = E (r) = r_{f + }β [E(r_{M }-r_{f})]

In the above scenario, substituting β = 1 and E(r_{M}) = 15%

E (r) = r_{f + }1[(15 – r_{f})]

E (r) = 15%

Therefore the correct answer is option ‘a’.

94% of StudySmarter users get better grades.

Sign up for free