As per 'Capital Asset Pricing Model - CAPM':
Expected Return = Risk Free Return + Beta(Expected Market Return - Risk Free Return)
http://www.investopedia.com/terms/c/capm...
By substituting values in the above formula, we get:
Expected Return = 3.5% + 1.14(10% - 3.5% )
OR
Expected Return = 3.5% + 1.14(6.5%) = 10.91% .
A stock has a beta of 1.14, the expected return on the market is 10 percent, and the risk-free rate is 3.5 percent. What must the expected return on this stock be?
