What is the beta for Stock A? Assume that the risk-free rate designated by r RF = 5%, the market risk premium designated by r M = 10%, and the expected rate of return for stock A is designated by r A = 12%,

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The beta of a stock gives the volatility of returns of the stock compared to the returns of the benchmark used to estimate volatility. Stocks with a high value of beta are high-risk, high-return options; compared to the benchmark they give higher gains as well as higher losses. Low beta...

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The beta of a stock gives the volatility of returns of the stock compared to the returns of the benchmark used to estimate volatility. Stocks with a high value of beta are high-risk, high-return options; compared to the benchmark they give higher gains as well as higher losses. Low beta stocks are less volatile with their returns but they have a lower magnitude as compared to the benchmark.

As the stock A has an expected rate of return of 12%, the risk-free rate is 5% and the market premium is 10%. The beta of the stock is:

B = (12 - 5)/(10 - 5) = 7/5 = 1.4

Stock A has a beta of 1.4

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