The risk-free rate of return is 3.68 percent and the market risk premium is 7.84 percent. What is the expected rate of return on a stock with a beta of 1.32?

The expected rate of return on a stock can be calculated using the Capital Asset Pricing Model (CAPM), which is expressed as:

Expected Return = Risk-Free Rate + Beta * Market Risk Premium

Given in the problem, we have:

Risk-Free Rate (Rf) = 3.68% Beta (β) = 1.32 Market Risk Premium (Rm-Rf) = 7.84%

Substituting these values into the CAPM equation, we get:

Expected Return = 3.68% + 1.32 * 7.84%

To solve for the Expected Return, first multiply the Beta by the Market Risk Premium:

1.32 * 7.84 = 10.3488

Then, add the Risk-Free Rate:

Expected Return = 3.68% + 10.3488% = 14.0288%

So, the expected rate of return on the stock is approximately 14.03%.