Jerry's Inc stock has an expected return of 12.50%, a beta of 1.25, and is in...

Jerry's Inc stock has an expected return of 12.50%, a beta of 1.25, and is in equilibrium. If the risk-free rate is 3.00%, what is the return on the market portfolio?

Expert Solution

Ans 10.60%

Expected Return =	Risk free Return + (Market Return - Risk free return)* Beta
12.50% =	3% + (Rm - 3%) * 1.25
12.50% - 3% =	1.25 Rm - 3.75%
12.50% - 3% + 3.75% =	1.25 Rm
13.25% =	1.25 Rm
Rm =	13.25% / 1.25
Rm =	10.60%

jeff jeffy answered 2 years ago

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