Question

The stock in Pal-Maine Foods has a beta of .85. The expected return on the market is 11.50 percent and the risk-free rate is 2.85 percent. What is the required return on the company's stock?

Answer 1

the required rate of return is 10.20%

Step-by-step explanation:

The computation of the required rate of return is shown below;

We know that

= risk free rate of return + beta × (market rate of return - risk free rate of return)

= 2.85% + 0.85 × (11.50% - 2.85%)

= 2.85% + 7.3525%

= 10.20%

hence, the required rate of return is 10.20%