A stock has an expected return of 0.07, its beta is 0.75, and the risk-free rate...

A stock has an expected return of 0.07, its beta is 0.75, and the risk-free rate is 0.03. What must the expected return on the market be? Enter the answer with 4 decimals (e.g. 0.0567).

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Expert Solution

Expected return = Risk-free rate + Beta(Market return - Risk-free rate)

0.07 = 0.03 + 0.75(Market return - 0.03)

0.07 - 0.03 = 0.75Market return - 0.0225

0.07 - 0.03 + 0.0225 = 0.75Market return

0.0625 = 0.75Market return

Market return = 0.0625 / 0.75

Market return = 0.0833

jeff jeffy answered 2 years ago

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