Question
Risk free rate are 8% and the expected market return is
12%. What is the expected rate of return of a stock having beta 1.2.Solution
As per CAPM (Capital Asset Pricing Model) Expected Return = Risk Free return + Beta (Expected market return- Risk Free return) = 8% + 1.2 (12%-8%) = 8% + 7.2% = 15.2%
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