MyBook's stock has a beta of -.22. The T-bill (annual) rate is .75%. If the market...

MyBook's stock has a beta of -.22. The T-bill (annual) rate is .75%. If the market is expected to go up by 11.5% this year, how much the MyBook stock is expected to move according to CAPM.

a 4.97%

b. 3.12%

c. 6.62%

d. -1.62%

Expert Solution

Using CAPM,

Expected Return on stock = Risk Free Rate + Beta x Market risk premium

Expected Return on stock = 0.75% + (-0.22) x (11.5%-0.75%)

Expected Return on stock = -1.615%

Therefore option d is correct.

jeff jeffy answered 2 years ago

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