Question

DVC stock has a required return of 25%. The expected market return is 15% and the risk-free rate is 5%. What is the beta of the DVC stock

Answer 1

2

Step-by-step explanation:

As per CAPM, Required Return = Risk Free rate + (Market Return - Risk Free Rate ) * Beta

25% = 5% + (15%-5%)*Beta

25% = 5%+10%*Beta

25% - 5% = 10%*Beta

Beta = (25%-5%)/10%

Beta = 20% / 10%

Beta = 2

Thus, the beta of the DVC stock is 2