Suppose that the best predictor for a stock's future beta is determined to be Expected beta =

Question:

Suppose that the best predictor for a stock's future beta is determined to be Expected beta = 0.33 4- 0.67 (historical beta). The historical beta is calculated as 1.2. The risk free rate is 5 percent, and the market risk premium is 8.5 percent. Calculate the expected return on the stock using expected (adjusted) beta in the CAPM.

Expected Return
The expected return is the profit or loss an investor anticipates on an investment that has known or anticipated rates of return (RoR). It is calculated by multiplying potential outcomes by the chances of them occurring and then totaling these...