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slavikrds [6]
3 years ago
13

Caribou Gold Mining Corporation is expected to pay a dividend of $4 in the upcoming year. Dividends are expected to decline at t

he rate of 3% per year. The risk-free rate of return is 5%, and the expected return on the market portfolio is 13%. The stock of Caribou Gold Mining Corporation has a beta of 0.5. Using the CAPM, the return you should require on the stock is _________.
Business
1 answer:
Margaret [11]3 years ago
6 0

Answer:

r = 0.09 or 9%

Explanation:

Using the CAPM, we can calculate the required rate of return on a stock. This is the minimum return required by the investors to invest in a stock based on its systematic risk, the market's risk premium and the risk free rate.

The formula for required rate of return under CAPM is,

r = rRF + Beta * (rM  - rRF)

Where,

  • rRF is the risk free rate
  • rM is the market return

r = 0.05  +  0.5 * (0.13 - 0.05)

r = 0.09 or 9%

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The correct answer is (d)

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Babe Ruth was a famous baseball player in the 1920s. He made a salary of $80,000 in 1930, which was considered outrageous becaus
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Catering Corp. reported free cash flows for 2008 of $8.17 million and investment in operating capital of $2.17 million. Catering
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Answer:

$11.59 million

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