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If the market risk premium increased to 6%, what would happen to the stock's required rate of return

User FuSsA
by
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1 Answer

5 votes

Answer:

13%

Step-by-step explanation:

As per the situation the solution of required rate of return first we need to find out the beta which is shown below:-

Expected rate of return = Risk-free rate of return + Beta × (Market rate of return - Risk-free rate of return)

11% = 7% + Beta × 6%

Beta = 1

now If the market risk premium increased to 6% so,

The required rate of return = 7% + 1 × 6%

= 13%

Therefore for computing the required rate of return we simply applied the above formula.

User Ahmed Adewale
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