Answered: Nuka Cola has a beta of 0.85. If the…

Nuka Cola has a beta of 0.85. If the risk-free rate of return is 4% and the expected return on the market is 9% then, according to CAPM, the expected return on Nuka Cola stock is:

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter2: Risk And Return: Part I

Section: Chapter Questions

Problem 2P: AA Corporations stock has a beta of 0.8. The risk-free rate is 4%, and the expected return on the...

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Question

Nuka Cola has a beta of 0.85. If the risk-free rate of return is 4% and the expected return on
the market is 9% then, according to CAPM, the expected return on Nuka Cola stock is:
a. 4.25%
b. 8.25%
c. 9.88%
d. 15.05%
e. 24.25%

Definition Definition Model that illustrates the correlation between the expected return and risk of capital investment in stock. According to this model, the expected rate of return on equity is equal to the risk-free return added to a risk premium, which is based on the stock beta.

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