Question

Assume that the risk-free rate is 3.5% and that the market risk premium is 4%.What is the required rate of return on a stock with a beta of 0.8? Round your answer to two decimal places. %What is the required rate of return on a stock with a beta of 2.3? Round your answer to two decimal places. %What is the required return on the market? Round your answer to two decimal places. %

Answer 1

Answer:

6.7%

12.7%

7.5%

Explanation:

Required rate of return = risk free rate + ( stock beta × Markert premium)

When beta = 0.8

The required rate of return = 3.5% + (4% × 0.8) = 6.7%

When beta = 2.3

The required rate of return = 3.5% + (4% × 2.3) = 12.7%

The required rate of return on the market:

3.5% + (4%×1) = 7.5%

I hope my answer helps you.