alpha of stock zero
return on market 16%
risk free rate 5%
stock earns a return that exceeds risk free rate by 11%
What is the Beta of the stock?
To calculate the beta of a stock, you need three pieces of information: the stock's return, the market return, and the risk-free rate.
Given that the stock earns a return that exceeds the risk-free rate by 11%, and the risk-free rate is 5%, we can calculate the stock's return using the formula:
Stock Return = Risk-free Rate + Excess Return
Stock Return = 5% + 11%
Stock Return = 16%
Now, to calculate the beta of the stock, we use the formula:
Beta = (Stock Return - Risk-free Rate) / Market Return - Risk-free Rate
Let's substitute the values we have into the formula:
Beta = (16% - 5%) / 16% - 5%
Beta = 11% / 11%
Beta = 1
Therefore, the beta of the stock is 1.