The formula for casting off the desired rate of return is -
The required rate of return = Risk-free rate + Beta (Market return - Risk-free rate)
= 5% + 1.5 (11% - 5%)
= 5% + 1.5 (6%)
= 5% + 9%
= 14%
<h2>Further Explanation
</h2>
The required rate of return is defined because the minimum rate of return that an investor will accept for holding a company's stock, as compensation for the danger which is related to that stock. this idea is additionally employed in finance, which with the assistance of this profitability of an investment project is analyzed.
The rate of return is obtained in the future, while the risk is defined as the uncertainty of the expected return.
The rate of return is an outcome obtained by an investor by investing his capital for a specified period of time and will get a certain amount of profit on that investment in the future.
<h3>Business risk is influenced by various factors, including:
</h3>
- Variability of demand for company products. The more stable the company's product sales, assuming other things remain (ceteris paribus), the smaller the business risk.
- Selling price variability. The easier the selling price changes, the greater the business risk faced.
- Variability of input costs. The more uncertain the input costs, the greater the business risks faced.
- The ability to adjust the selling price when there is a change in input costs. The greater the company's ability to adjust sales prices with changes in costs, the smaller the business risk.
- The level of use of fixed costs (operating leverage). The higher the level of use of fixed costs, the greater the risk of the business.
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Risk-free rate brainly.com/question/13056685
Business risk brainly.com/question/13056685
Details
Grade: High School
Subject: Business
Keyword: risk, rate, business
