If a stock has a beta of 1.15. The expected return on the market is 10.9% and the risk-free rate is 3.8%. What must the expected return on the stock be the capital asset pricing model states the relationship between the risk of a stock to project it’s expected return?

Expected return equals the risk-free rate plus the expected return on the market minus the risk free rate times beta, or it can be expressed as expected return equals the risk free rate plus beta times the expected return of the market minus the risk free rate.

Re = Rf + B (Erm-Rf)

2. Pick two stocks from your portfolio. Using their Beta, if the expected return on the market is 13% and the risk free rate is 4%, what are the expected rates of return for each of the two stocks?