Question

Ultra Corp. stock has a beta (β) of 1.2. The expected rate of return on the S&P 500 is 14% and the return on Treasury bills is 2.5%. What is the expected return of Ultra's. stock?

Answer 1

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Ra=	Rf+B(Rm-Rf)
Rf	2.50%
B	1.20
Return on S&P	14.00%
Ra=	2.50%+1.20*(14%-2.50%)
Ra=	16.30%