Question

The risk-free rate of interest is 4% and the market risk premium is 7%. Hughes Corporation has a beta of 1.3, and last year generated a return of 11% with a standard deviation of returns of 15%. The required return on Hughes Corporation stock is:

Answer 1

13.10%

Step-by-step explanation:

Required return = Risk-free rate + (Beta * Market risk premium) ...... (1)

Where;

Required return = ?

Risk-free rate = 4%, or 0.04

Beta = 1.3

Market risk premium = 7%, or 0.07

Substitute the values into equation (1), we have:

Required return = 0.04 + (1.3 * 0.07) = 0.1310, or 13.10%

Therefore, the required return on Hughes Corporation stock is 13.10%.