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17 July, 10:36

Given the following information, determine the beta coefficient for Stock L that is consistent with equilibrium: = 9.25%; rRF = 3.6%; rM = 8.5%. Round your answer to two decimal places. 1.15

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  1. 17 July, 10:46
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    The beta coefficient for Stock L that is consistent with equilibrium

    Explanation:

    According to Capital Asset Pricing Model, the formula to compute expected rate of return is equals to

    Expected rate of return = Risk free rate of return + Beta * (Market risk - risk free rate of return)

    where,

    rRF = risk free rate of return

    rM = market risk

    Stock L that is consistent with equilibrium is expected rate of return which equals to = 9.25%

    So,

    9.25% = 3.6% + Beta * (8.5% - 3.6%)

    9.25% = 3.6% + 4.9% Beta

    9.25% - 3.6% = 4.9% Beta

    5.65% = 4.9% Beta

    Beta = 5.65% : 4.9% = 1.15

    Hence, the beta coefficient for Stock L that is consistent with equilibrium is 1.15
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