Question

Hastings Entertainment has a beta of 0.69. If the market return is expected to be 12.10 percent and the risk-free rate is 5.10 percent, what is Hastings’ required return? (Round your answer to 2 decimal places.).

Answer 1

9.93%

Step-by-step explanation:

In this question, we apply the Capital Asset Pricing Model (CAPM) formula which is shown below

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

= 5.10% + 0.69 × (12.10% - 5.10%)

= 5.10% + 0.69 × 7%

= 5.10% + 4.83%

= 9.93%

The (Market rate of return - Risk-free rate of return) is also called the market risk premium