hawtshu4898 hawtshu4898

28-10-2022
Business

Answered

investors expect the market rate of return this year to be 14.00%. the expected rate of return on a stock with a beta of 1.8 is currently 25.20%. if the market return this year turns out to be 12.70%, how would you revise your expectation of the rate of return on the stock?

Answer :

Tutorconsortium315 Tutorconsortium315

02-11-2022

The expected rate of return on the stock is 14.52%

The computation of the rate of return on the stock is shown below:-

The expected rate of return on the stock = Beta × (Rate of return - Market rate of return)

= 1.2 × (0.121 - 0.145)

= - 2.88%

So, the expected rate of return on the stock = Current percentage - expected rate of return on the stock

= 0.174 - 0.0288

= 14.52%

What is rate of return?

An investment's return is a profit in finance. It includes any change in the value of the investment and/or cash flows that the investor receives from that investment, such as interest payments, coupons, cash dividends, stock dividends, or the payoff from a derivative or structured product.

The change in an investment's value expressed as a percentage is known as the yearly rate of return. For instance, if you believe you will get a 10% annual rate of return, you believe your investment will grow in value by 10% annually.

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