The risk-free rate of return is currently 0.04, whereas the market risk premium is 0.07. If...

The risk-free rate of return is currently 0.04, whereas the market risk premium is 0.07. If the beta of RKP, Inc., stock is 1.5, then what is the expected return on RKP? Round to three decimal places.

Expert Solution

ANSWER DOWN BELOW. FEEL FREE TO ASK ANY DOUBTS. THUMBS UP PLEASE.

As per CAPM model:

Re= Rf+(Rm-Rf)B

Re= required rate of return.

Rf= Risk-free rate. 4%

Rm = return on the market.

Rm-Rf =Market Risk Premium. 7%

B = Beta, systematic risk, 1.5

Re= 4% + 7%*1.5

Re = 14.5% or 0.145

Answer: expected return on rkp is 0.145

jeff jeffy answered 2 years ago

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