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

What is the expected return on Morrow's stock?

If the risk-free decreases to 4 percent, what is the expected return on Morrow's stock?

Solution Preview

Use the CAPM equation to calculate the expected return.
Expected Return = Risk Free Rate ( Market Return - Risk Free Rate ) X ...

Solution Summary

The solution explains how to calculate the expected return using the CAPM equation

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