Question

Trenia Inc. has a beta of 1.4. The three-month Treasury Bill rate is currently 4% and the return on S&P 500 index is 17%. What is the required rate of return for Trenia Inc.? Round your answer in percentage to two decimals.

Answer 1

The required rate of return for Trenia Inc. is 22.2% based on the given information.

Step-by-step explanation:

The required rate of return for Trenia Inc. can be calculated using the Capital Asset Pricing Model (CAPM). The CAPM formula is:

R(Rf) + beta x (Rm - R(Rf))

Where:

R(Rf) is the risk-free rate (Treasury Bill rate)

beta is the beta coefficient of Trenia Inc.

Rm is the return on S&P 500 index

To calculate the required rate of return, plug in the given values:

R(Rf) = 4%

beta = 1.4

Rm = 17%

Substituting the values into the formula:

Required rate of return = 4% + 1.4 x (17% - 4%)

Calculating this:

Required rate of return = 4% + 1.4 x 13%

Required rate of return = 4% + 18.2%

Required rate of return = 22.2%

Therefore, the required rate of return for Trenia Inc. is 22.2%.