Question

Assume that the risk-free rate is 3.5% and the market risk premium is 6%. 1. What is the required return for the overall stock market? Round your answer to two decimal places.2. What is the required rate of return on a stock with a beta of 2.3? Round your answer to two decimal places.

Answer 1

Answer:

9.5 %

17.3%

Explanation:

The market required rate of return = risk free rate + ( Market Beta × Market risk premium)

= 3.5% + (1 × 6%) = 9.5%

The stock required rate of return = 3.5% + (2.3 × 6%) = 0.173 = 17.3%

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