Question

Assume that the risk-free rate is 5% and the required return on the market is 12%. What is the required rate of return on a stock with a beta of 1.5?

Answer 1

Answer:

15.5%

Explanation:

Calculation for the required rate of return

Using this formula

Required return=Risk free rate +(Expected return-Free risk rate)×(Beta)

Let plug in the formula

Required return=0.05+(0.12-0.05)×(1.5)

Required return=0.05+(0.07)×(1.5)

Required return=0.05+0.105

Required return=0.155×100

Required return=15.5%

Therefore the required rate of return on a stock with a beta of 1.5 will be $15.5%