Question

MFI Inc. has a beta of . If the expected market return is percent and the​ risk-free rate is ​percent, what is the appropriate required return of MFI​ (using the​ CAPM)? Using the​ CAPM, the appropriate required return of MFI is 14.74​%. ​(Round to two decimal​ places.)

Answer 1

The appropriate required return of MFI using the CAPM is 10.8%.

Step-by-step explanation:

The appropriate required return of MFI using the CAPM can be calculated using the formula:

Required Return = Risk-Free Rate + Beta * (Market Return - Risk-Free Rate)

Given that the beta of MFI Inc. is 0.8, the expected market return is 12% and the risk-free rate is 6%, we can plug in these values into the formula:

Required Return = 6% + 0.8 * (12% - 6%)

Calculating the value:

Required Return = 6% + 0.8 * 6% = 6% + 4.8% = 10.8%

Therefore, the appropriate required return of MFI using the CAPM is 10.8%.

Answer 2

Answer: 14.38%

Step-by-step explanation:

Required return using the Capital Asset Pricing Model (CAPM) is:

= Risk free rate + Beta * (Expected market return - Risk free rate)

= 6.5% + 1.05 * (14% - 6.5%)

= 6.5% + 7.875%

= 14.38%