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?
Here are your answers.
a. The CAPM equation states that:
Rs = Rf + Beta*(Rm - Rf)
Rs is the expected return on the stock
Rf is ...
The formula is given and used to solve. No references.