According to CAPM:
Expected return of stock = Risk-free rate + beta (Market risk - Risk-free rate)
E[r] = 9% + 0.91(11% - 9%) = 10.82%

Things to Remember

• Expected return is a key concept in finance that helps investors estimate the potential gain or loss on an investment over a specific period of time.
• The Capital Asset Pricing Model (CAPM) is a widely-used method to determine the expected return on an investment based on its risk and the overall market conditions.
• Risk-free rate is the theoretical rate of return of an investment with zero risk, typically represented by government bonds.
• Beta is a measure of a stock's volatility in relation to the overall market, with a beta of 1 indicating the stock moves in line with the market.
• Market risk premium is the additional return expected by investors for taking on the risk of investing in the stock market compared to a risk-free investment.