Question

Zacher Co.'s stock has a beta of 1.40, the risk-free rate is 4.25%, and the market risk premium is 5.50%. What is the firm's required rate of return? Select one: a. 11.36% b. 11.65% c. 11.95% d. 12.25% e. 12.55%

Answer 1

option (c) 11.95%

Step-by-step explanation:

Data provided in the question:

Beta = 1.40

Risk-free rate, Rf = 4.25%

Market risk premium, Rm = 5.50%

Now,

Required rate of return = Rf + ( beta × Rm )

on substituting the respective values, we get

Required rate of return = 4.25% + ( 1.40 × 5.50% )

= 4.25% + 7.7%

= 11.95%

Hence,

the correct answer is option (c) 11.95%