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CAPM calculations

If the beta of Goo-Goo Cluster's stock is 1.26, the risk-free rate is 5.5%, and the expected return on the market portfolio is 13.5%:

1. What is the expected return for Goo-Goo Cluster's stock.?
2. What is the market risk premium in this situation?
3. What is the beta of the market portfolio?
4. What is the beta for an average risk stock?

Solution Preview

1. What is the expected return for Goo-Goo Cluster's stock.?

Use the CAPM equation to calculate the expected return
Expected return = Rf + (Rm-Rf) X beta
here
Rf = 5.5%
Rm = ...

Solution Summary

The solution explains various calculations using the CAPM equation

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