Question

The stock in Bowie Enterprises has a beta of .89. The expected return on the market is 11.90 percent and the risk-free rate is 2.93 percent. What is the required return on the company's stock?a. 10.91%b. 13.52%c. 10.31%d. 10.61%e. 12.22%

Answer 1

a. 10.91%

Step-by-step explanation:

The computation of the required return on the company stock is shown below:

As per CAPM, the required return is

= Risk free rate of return + Beta × (Market rate of return - risk free rate of return)

= 2.93% + 0.89 × (11.90% - 2.93%)

= 2.93% + 0.89 × 8.97

= 10.91%

Hence, the required return on the company's stock is 10.91%

Therefore the correct option is a.