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What is the expected return for XYZ company based on the information given below: Beta = 1.2 RFR=3% Return on market=12% _____"Question 53Answera.17.4%b.13.8%c.21%

Question

What is the expected return for XYZ company based on the information given below: Beta = 1.2 RFR=3% Return on market=12% _____"Question 53Answera.17.4%b.13.8%c.21%

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Solution

The expected return for XYZ company can be calculated using the Capital Asset Pricing Model (CAPM) formula:

Expected Return = Risk-Free Rate + Beta * (Market Return - Risk-Free Rate)

Given the values: Beta (β) = 1.2 Risk-Free Rate (RFR) = 3% or 0.03 (in decimal form) Market Return = 12% or 0.12 (in decimal form)

Substitute these values into the formula:

Expected Return = 0.03 + 1.2 * (0.12 - 0.03) Expected Return = 0.03 + 1.2 * 0.09 Expected Return = 0.03 + 0.108 Expected Return = 0.138 or 13.8%

So, the expected return for XYZ company is 13.8%. Therefore, option b. 13.8% is the correct answer.

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