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Linda_us, Finance, Accounts & Homework Tutor
Category: Homework
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Experience:  Post Graduate Diploma in Management (MBA)
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# Assume that the risk free rate is 5% and the market risk premium

### Customer Question

Assume that the risk free rate is 5% and the market risk premium is 6%. What is the expected return for the overall stock market? What is the required rate of return on a stock with a beta of 1.2?
Submitted: 5 years ago.
Category: Homework
Expert:  Linda_us replied 5 years ago.
HiCustomerbr />

Required Return = Risk free Return + Beta*(Market Risk Premium)= 5 + 1.2(6) = 12.2%

Regards

Linda
Linda_us, Finance, Accounts & Homework Tutor
Category: Homework
Satisfied Customers: 7266
Experience: Post Graduate Diploma in Management (MBA)
Customer: replied 5 years ago.
I need to know the expected return, not the required return.
Expert:  Linda_us replied 5 years ago.
Hi

Its the same thing

Expected Return = Risk free Return + Beta*(Market Risk Premium)= 5 + 1.2(6) = 12.2%

Regards

Linda
Customer: replied 5 years ago.
Now, the correct answer should be 5.50% for the expected rate of return, and the 12% is the required rate of return with beta 1.2. This is the answer that our instructor gave us, but I am confused with the formula to get the 5.50%. Help!!
Expert:  Linda_us replied 5 years ago.
You can view this answer by clicking here to Register or Login and paying \$3.

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