To calculate the expected return of the stock, we can use the Capital Asset Pricing Model (CAPM) formula:

$E(R_i) = R_f + \beta \times \left(E(R_m) - R_f\right)$

Where:

• $E(R_i)$ = Expected return of the stock
• $R_f$ = Risk-free rate = 1.91% = 0.0191
• $E(R_m)$ = Expected return on the market = 12.23% = 0.1223
• $\beta$ = Beta of the stock = 1.14

Step-by-step calculation:

1. Calculate the market risk premium: $E(R_m) - R_f = 0.1223 - 0.0191 = 0.1032 \, (10.32\%)$

2. Multiply the market risk premium by the beta of the stock: $\beta \times \left(E(R_m) - R_f\right) = 1.14 \times 0.1032 = 0.117648 \, (11.7648\%)$

3. Add the risk-free rate to the result: $E(R_i) = R_f + \beta \times \left(E(R_m) - R_f\right) = 0.0191 + 0.117648 = 0.136748 \, (13.6748\%)$

Final Answer:

The expected return of the stock is approximately 13.67%.

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Would you like a breakdown of related concepts or further clarification?

Here are 5 related questions you might explore:

1. What does the beta ($\beta$) of a stock represent in CAPM?
2. How would a change in the market's expected return affect the stock's expected return?
3. Can a stock have a negative beta, and what does it imply for expected returns?
4. How does the CAPM compare to other models like the Fama-French three-factor model?
5. What are the limitations of using CAPM for estimating expected returns?

Tip: Always double-check the risk-free rate and market return assumptions, as small errors can significantly impact the result.