financial question

• green1

  17 Feb 11, 03:13

  Assuming a risk-free rate of 8 percent and a market return of 12 percent,would you be willing to purchase a stock with a Beta of 1.5 and a rate of return of 14 percent? Anyone know how to answer this?
• βέτά

  17 Feb 11, 06:45

   

  risk premium = 12% - 8% = 4%

   

  expected return = 8% + 1.5 (4%) = 14%

   

  i would be indifferent to the investment because the stock pays exactly what beta prescribed. (which is me, i rulez)