Q. Stock A has a beta of 1.0 and very high unique risk. If the expected return on the market is 20%, then according to the CAPM the expected return on Stock A will be: (Solved)
1. the answer cannot be found without knowing Stock A’s correlation or covariance with the market.
2. more than 20% because of Stock A’s very high unique risk.
3. exactly 20%.
4. the answer cannot be found without knowing the risk-free rate of interest.
- c. exactly 20%.