Consider an asset that has a beta of 1.25. If the risk free rate is 3.25 and the mrket risk premium is 5.5% caculate the expected return on the asset.

10.125%

Explanation:

The formula to compute the expected return on the asset is shown below:

Expected return on the asset = Risk-free rate of return + Beta * (Market rate of return - Risk-free rate of return)

= 3.25% + 1.25 * 5.5%

= 3.25% + 6.875%

= 10.125%

The (Market rate of return - Risk-free rate of return) is also known as the market risk premium and the same is used in the computation part