Consider a stock that has a Beta of 0.85. You expect the long-term return on the market to be 9.75% and the current return on Treasury Bonds is 2.50%. Use the Capital Asset Pricing Model to determine what should be the return on this stock? 8.66% 7.92% 10.79% 6.34%

Consider a stock that has a Beta of 0.85. You expect the long-term return on the market to be 9.75% and the current return on Treasury Bonds is 2.50%. Use the Capital Asset Pricing Model to determine what should be the return on this stock? 8.66% 7.92% 10.79% 6.34%

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter2: Risk And Return: Part I

Section: Chapter Questions

Problem 4P: An analyst has modeled the stock of a company using the Fama-French three-factor model. The market...

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Question

Consider a stock that has a Beta of 0.85. You expect the long-term return on the market to be 9.75% and the current return on Treasury Bonds is 2.50%. Use the Capital Asset Pricing Model to determine what
should be the return on this stock?
8.66%
O 7.92%
O 10.79%
O 6.34%

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