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    Returns on portfolios/stock

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    I have found the following example; however, I am uncertain how to complete it. Thank you for your assistance.

    Suppose the expected return on the market portfolio is 13.8 percent and the risk-free rate is 6.4 percent. Solomon Inc. stock has a beta of 1.2. 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 3.5 percent, what is the expected return on Solomon's stock?

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    Solution Summary

    This explains the calculation of returns on portfolios/stock