Question

Castle Black Camping is twice as risky as the average stock. The market should earn 11% and the risk free rate is 2%. What is a fair return for CBC? (20%)

Answer 1

Step-by-step explanation:

Risk free rate=2%

Beta = 2

Rm =11%

Risk premium Rm = rm - rf

Fair return= risk free rate + beta *(market return- risk free rate)

= rf+b*(rm-rf)=rf + b * (Risk Premium)

=0.02 + 2 * (0.11 - 0.02)

=0.2

= 20%

A fair return for CBC is 20%.