What return would you expect if the risk-free rate of return was 5 per cent, the beta risk is 1.5, and the historical risk premium has been 6 per cent? (Base you calculation on the capital asset pricing model.) A) 14% B) 13.5% C) 11% D) 16.5%

What return would you expect if the risk-free rate of return was 5 per cent, the beta risk is 1.5, and the historical risk premium has been 6 per cent? (Base you calculation on the capital asset pricing model.) A) 14% B) 13.5% C) 11% D) 16.5%

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question

9. What return would you expect if the risk-free rate of return was 5 per cent, the beta risk is 1.5, and the historical risk premium has been 6 per cent? (Base you calculation on the capital asset pricing model.)

A) 14%

B) 13.5%

C) 11%

D) 16.5%

Definition Definition Model that illustrates the correlation between the expected return and risk of capital investment in stock. According to this model, the expected rate of return on equity is equal to the risk-free return added to a risk premium, which is based on the stock beta.

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