Question

FedEx (FDX) has a beta of 1.50, the return on a 10-year U.S. Treasury bond, rrf, is 3.40%, and we use a stock market risk premium of 5.5%, thus, [rM - rrf ] = 5.5%. Given the equation for the Capital Asset Pricing Model (CAPM) is: rFDX = rrf + [rM - rrf ]_, what is the required rate of return for FDX stock?a)-10.72%b)-11.01%c)-11.65%d)-11.99%e)-12.25%

Answer 1

Answer:

C)  11.65%

Explanation:

Simply input the values in the formula

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

= 3.40 + (1.5 * 5.5)

= 11.65%

Treasury bonds are taken as the prevailing risk free rate.

Hope that helps.