Question

If the risk-free rate is 7 percent, the expected return on the market is 10 percent, and the expected return on Security J is 13 percent, what is the beta of Security J

Answer 1

Answer:

0.02 or 2% = Beta

Step-by-step explanation:

Given that,

Risk-free rate = 7 percent

Expected return on the market = 10 percent

Expected return on Security J = 13 percent

Therefore, the beta of Security J is calculated as follows;

Expected return on Security J = Risk-free rate + Beta (Expected return on the market - Risk-free rate)

13 percent = 7 percent + Beta (10 percent - 7 percent)

0.13 - 0.07 = 0.03 Beta

0.06 = 0.03 Beta

0.06 ÷ 0.03 = Beta

0.02 or 2% = Beta