A stock with a beta of zero would be expected to have a rate of return equal to:

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Amir Lowe

Business

29 April, 00:09

A stock with a beta of zero would be expected to have a rate of return equal to:

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Answers (1)

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Grady Sherman · Answer 1

A stock with a beta of zero would be expected to have a rate of return equal to the risk free rate of return.

Explanation:

A stock with the Beta of zero has 0 co relation with market movements and is unaffected by the changes in the stock market. This stock would have the expected return equal to the risk free rate of return.

The CAPM formula for rate of return is

Risk free rate of retun + (Beta * Market risk premium)

Because the Beta is 0 the second part of the equation will also be 0 the the stock would have the same rate of return as the risk free rate of return.