Posted by **Bob** on Tuesday, April 20, 2010 at 6:20pm.

Suppose you are considering two investments, stock A and stock B. The beta of A is 1.20, and the beta of B is 0.80. Stock A has an expected return of 12% and Treasury Bills are yielding 3%.

If the two stocks are fairly prices, what's the expected return on the Market Index?

Someone said the answer was:

(.12-.03)/1.2)+.03 = .105

Can someone please explain why??

## Answer This Question

## Related Questions

- finance - A stock has a beta of 2.0. A security analyst who specializes in ...
- Finance - A portfolio consists of three stocks. The weight, expected rate of ...
- finance - 5. Consider the following stocks, all of which will pay a liquidating ...
- Business - Based on this financial info where a company's Beta Year = 2008, the...
- Corporate Finance - I am looking at a stock whose price is $45.00. I want a ...
- finace - 15. Suppose that the following version of the APT is a good model of ...
- investing - You have a $ 2 million portfolio consisting of $100,000 investment ...
- Financial Management - You have a $2 million portfolio consisting of a $100,000 ...
- finance (Check Answer plz) - Following are rates of return on medical equip. ...
- finance (Check Answer plz) - Following are rates of return on medical equip. ...

More Related Questions