question archive If you know that the interest rate for government bonds is 5% and the risk premium for investing in the capital market is 7%, what is the expected return for a stock that has a beta of 1

If you know that the interest rate for government bonds is 5% and the risk premium for investing in the capital market is 7%, what is the expected return for a stock that has a beta of 1

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If you know that the interest rate for government bonds is 5% and the risk premium for investing in the capital market is 7%, what is the expected return for a stock that has a beta of 1.56?

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As per capital asset pricing model

Expected return for a stock = Risk free rate + (market risk premium * Beta)

Therefore expected return = 5 + (7*1.56)

Expected Return = 5 + 7.8 = 12.8%

Expected return = 12.8%

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