The Bumble Bee Corp has a beta of 145 You observed the risk

The Bumble Bee. Corp. has a beta of 1.45. You observed the risk free rate of return to be 6.5% and the market risk premium of 5%. What is the expected return of the stock? (13.75% is the answer but how do you get this?)

Solution

Expected return on the stock = Risk free return + Beta *Market risk premium

= 6.5%+1.45*5% i.e 13.75%