A stock has an expected return of 13 percent, the risk-free rate is 7 percent, and the market risk premium is 8 percent. what must the beta of this stock be?

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26-03-2018
Business

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A stock has an expected return of 13 percent, the risk-free rate is 7 percent, and the market risk premium is 8 percent. what must the beta of this stock be?

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MrBalduzzi MrBalduzzi · Answer 1 · 2018-03-28T05:31:03+02:00

MrBalduzzi MrBalduzzi

28-03-2018

Beta is 0.75.

The expected return = risk-free rate + Beta * (market risk premium)

13% = 7% + Beta * 8%
6% = Beta * 8%
Beta = 0.75

Here, since we know the expected return is 13% and the risk-free rate is 7% and the market risk premium is 8%, we solve for Beta using the CAPM formula.

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