Suppose that the S&P 500 is expected to return 11 percent in the next year and T-bills are yielding 2.3 percent. If the beta of stock A is 1.25, then the expected (or required) return for stock A is: Multiple Choice O O O 13.18% 11.00% 10.88% None of these answers is correct 16.05%

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A: Beta = 3.37, Expected Return = 31.84% and, Risk Free Rate = 7.0%

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Q: Required Rate of Return AA Corporation's stock has a beta of 0.6. The risk-free rate is 3%, and…

A: To calculate the required return we will use the below formula   Required rate of return = Risk free…

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A: Using the Capital Asset Pricing Model: R = Rf+β×(Rm-Rf) where, R = Expected Return  Rf = Risk free…

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A: Beta = 1.07 Market return = 10.1% Risk free rate = 4.9%

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A: The expected return on the stock is calculated using the following equation

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A: In this we have to use capital assets pricing formula for calculation of expected return.

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A:

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Risk and return

Before understanding the concept of Risk and Return in Financial Management, understanding the two-concept Risk and return individually is necessary. 

Capital Asset Pricing Model

Capital asset pricing model, also known as CAPM, shows the relationship between the expected return of the investment and the market at risk. This concept is basically used particularly in the case of stocks or shares. It is also used across finance for pricing assets that have higher risk identity and for evaluating the expected returns for the assets given the risk of those assets and also the cost of capital.