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%

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%.

jeff jeffy answered 3 years ago

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Apple recently had a stock split, so I decided to buy a few shares of Apple...

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