Expected Return Calculation Using CAPM

The Capital Asset Pricing Model (CAPM) is a fundamental concept in finance that describes the relationship between systematic risk and expected return for assets, particularly stocks. According to the CAPM, the expected return on an asset is equal to the risk-free rate plus a risk premium that is proportional to the asset's beta, which measures its sensitivity to movements in the overall market.

Consider the following information for a stock:

• The risk-free rate is 2%.
• The expected market return is 8%.
• The beta of the stock is 1.5.

Based on the CAPM, what is the expected return on the stock?