Question

The risk-free rate of return is 2,2 percent, the expected market return is 11 percent, and the beta for solstice, inc. is 1.12. what is solstice's required rate of return?

Answer 1

A unique approach known as the capital asset pricing model or CAPM is employed in finance to determine the correlation between the risk of investing in a particular share and expected dividends. The expected returns for security are calculated using the CAPM model.

CAPM model

Required rate of return = Risk-free return + Beta (Market return - Risk-free return)

Required rate of return = 2.2% + 1.12 (11% - 2.2%)

Required rate of return = 12.05%

Hence, the correct option is D (12.05%).

The risk-free rate is the rate of return offered by an investment that carries zero risk. Every investment asset carries some level of risk, however small, so the risk-free rate is.

To learn more about CAPM models visit the link

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