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You are deciding whether to buy Stock A. You estimate Stock A's beta at 0.3 and its expected return at 4% over the next year.

You are deciding whether to buy Stock A. You estimate Stock A's beta at 0.3 and its expected return at 4% over the next year. The risk-free rate is 1.5% and you estimate the market portfolio's expected return at 6%. You are using the CAPM to decide if the stock's expected return is high enough to compensate you for the risk of holding the stock. Based on the CAPM, should you buy the stock? LO3


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