Question

Assume that the risk-free rate is 3% and the required return on the market is 9%. What is the required rate of return on a stock with a beta of 1.9? Round your answer to two decimal places.

Answer 1

Required return = 14.4%

Step-by-step explanation:

Below is the calculation for the required rate of return:

Risk free rate = 3%

The required return on the market = 9%

Beta value = 0.9

Use the below formula:

Required return = Risk free rate + (Market risk premimum)(Beta value)

Required return = 3% + (9% - 3%)(1.9)

Required return = 3% + 6%

Required return = 14.4%