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# Assume that the risk free rate is 5% and the market risk premium

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

Regards

Linda
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Customer: replied 7 years ago.
I need to know the expected return, not the required return.
Hi

Its the same thing

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

Regards

Linda
Customer: replied 7 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!!
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