# Question - CAPM and Beta

 Question - CAPM and Beta Magnusdottir, Student (University), Iceland The beta of stock A is 0,8. The risk free rate is 6%. The market risk premium is 8,5%. Assume the CAPM theory holds. What is the expected return of stock A? Can somebody help me with how this question is solved. Thanks...
 CAPM and Beta ExamplePaul Kinnaird, Student (University), United StatesThe Capital Asset Pricing Model for stock A would be written: RoR = Rate of Return RFR = Risk Free Return RoR for stock A = RFR + Beta(RoR for market - RFR) The difference between the market RoR and the RFR is the market risk premium. Therefore: RoR for A = 6 + 0.8(8.5) = 12.8%.

 CAPM and Betaabdollah, Student (Other), IranIn fact, the expected market return is: 8.5 + 6 = 14.5% And the expected return of stock A is: 12.8%.

 CAPM, Calculating Expected ReturnMuqeem Razvi, Teacher, PakistanIf B=0.8 Rf=6% Rm-Rf=8.5, Then E(r) will be 12.8%, Market risk premium is equal to Rm (Return on market portfolio) minus Rf (Risk free rate), that will be RPm = Rm - Rf RPm = 14.5 - 6 RPm = 8.5 , then E(r)i = Rf + (Rm - Rf)B E(r)i = 6 + (14.5 - 6)0.8 E(r)i = 12.8%.

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