位置9的问题 More by Moore has a growth rate of 4.3 percent and its stock is currently selling for $31.88 per share. It is equally as risky as the market. The stock market has an expected return of 13 percent and an expected market risk premium of 11.55 percent. What is the expected rate of return on the stock?12.23%14.45%28.30%11.55%13.00%清除选择Single choice
A
12.23%
B
14.45%
C
28.30%
D
11.55%
E
13.00%

Question

位置9的问题 More by Moore has a growth rate of 4.3 percent and its stock is currently selling for $31.88 per share. It is equally as risky as the market. The stock market has an expected return of 13 percent and an expected market risk premium of 11.55 percent. What is the expected rate of return on the stock?12.23%14.45%28.30%11.55%13.00%清除选择Single choice

A

12.23%

B

14.45%

C

28.30%

D

11.55%

E

13.00%

BlackTom AI · Accepted Answer

The problem provides that the stock is as risky as the market (beta = 1), the market's expected return is 13%, and the market risk premium is 11.55%.

First, recognize the relationship between the market risk premium, the risk-free rate, and market return. The market risk premium is E(Rm) − Rf, which is given as 11.55%. The market's expected return E(Rm) is 13%, so the risk-free rate must be Rf = E(Rm) − (market risk premium) = 13% − 11.55% = 1.45%.

Using the CAPM formula, the expected return on the stock is E(Ri) = Rf + beta × (E(Rm) − Rf). With beta = 1 and (E(Rm) − Rf) equal to the market risk premium of 11.55%, we get E(Ri) = 1.45% + 11.55% = 13.00%.

Now evaluate the answer choices:
- 12.23%: This would correspond to a smaller risk premium or a higher risk-free rate; it does not match CAPM with the given inputs. It ignores the 11.55% market risk premium properly.
- 14.45%: This would require either a higher beta or a higher risk premium than given; with beta = 1 and the stated premium, this is inconsistent.
- 28.30%: This is far too large for a stock with market-like risk; it would imply an enormous risk premium or a misapplication of the formula.
- 11.55%: This equals the market risk premium alone and would only occur if the risk-free rate were 0% and beta were 0, which is not the case here.
- 13.00%: This exactly matches the CAPM calculation using Rf = 1.45% and beta = 1, given the market risk premium is 11.55% and E(Rm) = 13%.

In summary, the correct computation yields 13.00% as the expected return for a stock with the same risk as the market, given the provided market return and premium.

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