Question

Suppose that market risk premium is 6% and the risk-free interest rate is 3%.

	Starbucks	Hershey	Autodesk
Beta	0.80	0.33	1.72

Using the data in the table above, calculate the expected return of investing in

A.Starbucks' stock

B. Hershey's stock

C. Autodesk's stock

Answer 1

A.Starbucks' stock
Expected Return =	Risk free Return + Market Risk Premium * Beta
Expected Return =	3% + 6% * 0.80
Expected Return =	7.8%
B. Hershey's stock
Expected Return =	Risk free Return + Market Risk Premium * Beta
Expected Return =	3% + 6% * 0.33
Expected Return =	5.0%
C. Autodesk's stock
Expected Return =	Risk free Return + Market Risk Premium * Beta
Expected Return =	3% + 6% * 1.72
Expected Return =	13.3%