Question

Given the following information, determine the beta coefficient for Stock L that is consistent with equilibrium: = 9.25%; rRF = 3.6%; rM = 8.5%. Round your answer to two decimal places. 1.15

Answer 1

Answer:

The beta coefficient for Stock L that is consistent with equilibrium

Explanation:

According to Capital Asset Pricing Model, the formula to compute expected rate of return is equals to

Expected rate of return = Risk free rate of return + Beta × (Market risk - risk free rate of return)

where,

rRF = risk free rate of return

rM = market risk

Stock L that is consistent with equilibrium is expected rate of return which equals to = 9.25%

So,

9.25% = 3.6% + Beta × (8.5% - 3.6%)

9.25% = 3.6% + 4.9% Beta

9.25% - 3.6% = 4.9% Beta

5.65% = 4.9% Beta

Beta = 5.65% ÷ 4.9% = 1.15

Hence, the beta coefficient for Stock L that is consistent with equilibrium is 1.15