The Expected Return for a Stock, Calculated Using the CAPM

question 18

Multiple Choice

The expected return for a stock, calculated using the CAPM, is 10.5 percent. The market return is 9.5 percent, and the beta of the stock is 1.50. Calculate the implied risk-free rate.

• A) 7.50 percent
• B) 13.91 percent
• C) 17.50 percent
• D) 21.88 percent
• E) 14.38 percent

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Definitions:

Skipped Lectures

The instances where students do not attend scheduled educational classes or sessions.

Linearly Related

Refers to two or more variables which change at a constant rate relative to each other, indicating a straight-line relationship on a graph.

Residual Degrees

Residual degrees, more commonly known as degrees of freedom in residuals, indicate the number of independent pieces of information available to estimate variability or error in statistical models.

Degrees of Freedom

The total number of individual elements or magnitudes that can alter within an examination without contravening any conditions.