# Suppose the expected return on the market portfolio is 14.7 percent and the risk-free rate is 4.9 percent. Solomon Inc.stock has a beta of 1.3.Assume the capital-asset-pricing model holds.

Ross chapter 10, Question 10.31 Modified

10.31 Suppose the expected return on the market portfolio is 14.7 percent and the risk-free rate is 4.9 percent. Solomon Inc.stock has a beta of 1.3.Assume the capital-asset-pricing model holds.

a. What is the expected return on Solomon's stock?

b. If the risk-free rate decreases to 3.7 percent, what is the expected return on Solomon's stock?

https://brainmass.com/business/capital-asset-pricing-model/90098

#### Solution Preview

Hello!

Here are your answers.

a. The CAPM equation states that:

Rs = Rf + Beta*(Rm - Rf)

where

Rs is the expected return on the stock

Rf is ...

#### Solution Summary

The formula is given and used to solve. No references.

$2.19