Question

Lime Inc. has a beta of 1.6. The three-month Treasury Bill rate is currently 6% and the market risk premium is 6%. What is the required rate of return for Lime Inc.? Round your answer in percentage to two decimals.

Answer 1

The required rate of return for Lime Inc. is 15.6%.

Step-by-step explanation:

The required rate of return for Lime Inc. can be calculated using the formula:

RLime Inc. = Rf + βLime Inc. × (Rm - Rf)

Where:

• RLime Inc. is the required rate of return for Lime Inc.
• Rf is the risk-free rate (three-month Treasury Bill rate) which is 6%
• βLime Inc. is the beta of Lime Inc. which is 1.6
• Rm is the market risk premium which is 6%

RLime Inc. = 6% + 1.6 × 6% = 15.6%

Therefore, the required rate of return for Lime Inc. is 15.6%.