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Question - CAPM and Beta
Magnusdottir, Student (University), Iceland, Member
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...
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CAPM and Beta Example
Paul Kinnaird, Student (University), United States, Member The 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%.
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