Question

The Three Stones Miller issues common stock that has a beta that is 8% greater than...

The Three Stones Miller issues common stock that has a beta that is 8% greater than the overall market beta. Currently, the market return is 11.95%, while the U.S. Treasury bill is yielding 4.3%.

What is the estimated return?

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Answer #1

Market Beta = 1

Stock's beta is 8% greater than Market's beta

Thus,

Stock's beta = 1*(1+0.08) = 1.08

Risk free rate (rf) = 4.3%

Market return (rm) = 11.95%

Estimated return of stock(R) under CAPM would be:

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