Explanation:
The correct answer is D.
Recall that:
E(rᵢ) − r_f = βᵢ(E(rₘ) − r_f)
Therefore:
E(rᵢ) = 1.3(6.2% − 3.9%) + 3.9% = 6.89%
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Q.3023 The expected return of the market portfolio, E(rₘ), is 6.2% and the risk-free rate, r_f, is given as 3.9%. Let’s also assume that the beta of the asset is given as 1.3. What is the asset’s expected return, E(rᵢ)?
A
4.96%
B
2.99%
C
11.96%
D
6.89%