Question
In: Finance
Apple recently had a stock split, so I decided to buy a few shares of Apple...
Apple recently had a stock split, so I decided to buy a few shares of Apple stock. As of today, Apple's beta is 1.28, the treasury yield is around 1.42%, and the market risk premium is 5.6% (Rudden, 2020). What is my expected return on Apple stock? Please explain your work.
| Economic State | Probability | Sony | McDonald's |
| Recession | 50% | 5% | 6.00% |
| Normal | 30% | 7.69% | 5.28% |
| Expansion | 20% | 15% | 5.80% |
Solutions
Expert Solution
| Risk free rate | 1.42% |
| Market risk premium | 5.60% |
| Beta | 1.28 |
| Expected return= | Risk free rate + Beta * Market risk premium |
| Expected return= | 1.42%+1.28*5.6% |
| Expected return= | 8.59% |
| If the investor does not want to take any risk then treasury yield is the apt return without any risk. | |
| Beta signifies the relative risk in a particular stock. If the investor choose to have some risk in their | |
| portfolio, then they will also some extra return. This return is directly proportionate to the Risk weightage. | |
| Accordingly, Market risk premium adjusted with Beta is added to the risk free rate to come to expected | |
| return of any particular stock. So the expected return from Apple stock is 8.59%. |
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depends on the type of fund you buy. The following data are based
on information taken from a mutual fund guide available in most
libraries.
A random sample of percentage annual returns for mutual funds
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