The risk-free rate is 4%, the market risk premium is 8%, and the market return is 12%. Stock Y's beta is 1.85 and the standard deviation of its returns is 60%. What should be the stock's expected rate of return to make the investor indifferent toward buying or selling the stock?
Added by Agust-N G.
Step 1
The formula for CAPM is: Expected Return = Risk-Free Rate + Beta * (Market Return - Risk-Free Rate) Substituting the given values into the formula, we get: Expected Return = 4% + 1.85 * (12% - 4%) = 4% + 1.85 * 8% = 18.8% Show more…
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