Question

Cooley company's stock has a beta of 1.32, the risk-free rate is 4.25%, and the market risk premium is 5.50%. what is the firm's required rate of return?

Answer 1

11.51%

The required rate of return = risk-free rate + Beta * (market risk premium)

Here, we multiply the beta of 1.32 times the market risk premium of 5.50%, then add the risk-free rate of 4.25% to get the required rate of return, or 11.51%.