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19 September, 03:25

Suppose the Green Elf Corporation's common stock has a return of 12%. Assume the risk-free rate is 4%, the expected market return is 9%, and no unsystematic surprise affected the Green Elf's return. The beta for the firm is:

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  1. 19 September, 05:48
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    1.6

    Explanation:

    Given that,

    Stock has a return = 12%.

    Risk-free rate = 4%

    Expected market return = 9%

    Stock return = Risk free return + Beta of Stock * (Market return - Risk free return)

    12% = 4% + Beta of Stock * (9% - 4%)

    8% = Beta of Stock * (5%)

    8% : 5% = Beta of Stock

    1.6 = Beta of Stock

    Therefore, the beta for the firm is 1.6.
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