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Explanation:

According to CAPM,

\begin{aligned} E(R_i) &= R_f + (E(R_m) - R_f)\beta_i \\ 7\% &= 5\% + (E(R_m) - 5\%)0.8 \\ 2\% &= (E(R_m) - 5\%)0.8 \\ \frac{2\%}{0.8} &= E(R_m) - 5\% \\ E(R_m) &= 2.5\% + 5\% = 7.5\% \end{aligned}

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Q.193 John Powel gathers the following information regarding the stock of Swisscom, an internet service provider: - Beta for Swisscom = 0.8 - Risk-free rate = 5% - Powel's expected rate of return for Swisscom = 7% Use this information to determine the expected market return. | Financial Risk Manager Part 1 Quiz - LeetQuiz

Financial Risk Manager Part 1

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Q.193 John Powel gathers the following information regarding the stock of Swisscom, an internet service provider: Beta for Swisscom = 0.8 Risk-free rate = 5% Powel's expected rate of return for Swisscom = 7% Use this information to determine the expected market return.

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Q.193 John Powel gathers the following information regarding the stock of Swisscom, an internet service provider:

Beta for Swisscom = 0.8

Risk-free rate = 5%

Powel's expected rate of return for Swisscom = 7%

Use this information to determine the expected market return.