Explanation:
According to the Capital Asset Pricing Model (CAPM), the expected return of an asset is given by the formula:
Where: (Return on the stock) (Risk-free rate) (Expected return of the market)
Plugging in the given numbers to solve for Beta ():
11.8\% = 3\% + \beta \times (14\% - 3\%)$$ $11.8`\% - 3\% = \beta \times 11\%$$
$8.8% = \beta \times 11%\beta = \frac{8.8%}{11%} = 0.8$$
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Q.98 Malala Pham is an equity analyst. She has been asked to derive the beta of a stock from the CAPM. What is the value of the beta if the risk-free rate is 3%, the expected return of the market is 14%, and the return on the stock is 11.8%?
A
0.63
B
1.5
C
0.8
D
1.07