Answer:
The expected rate of return in the market 13.29%.
Explanation:
The expected rate of return on a stock is 16.48%.
The stock has a beta of 1.33.
The yield from treasury bill is 3.65%. Since treasury bills are risk free we will consider this risk free rate of return.
The inflation rate is 2.95%.
Expected return on stock=risk free rate+beta(market return-risk free rate)
16.48% = 3.65% + 1.33 (market return - 3.65% )
16.48% - 3.65% = 1.33 ( market return - 3.65% )
12.83% = 1.33( market return - 3.65% )
Market return - 3.65% = [tex]\frac{12.83}{1.33}[/tex]
Market return - 3.65% = 9.64%
Market return = 9.64% + 3.65%
Market return = 13.29%
