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A manager believes his firm will earn a return of 19.40 percent next year. His firm has a beta of 1.67, the expected return on the market is 11.20 percent, and the risk-free rate is 3.20 percent. Compute
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A manager believes his firm will earn a return of 19.40 percent next year. His firm has a beta of 1.67, the expected return on the market is 11.20 percent, and the risk-free rate is 3.20 percent. Compute the return the firm should earn given its level of risk. (Round your answer to 2 decimal places.)

User Sharpmachine
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1 Answer

2 votes

Answer:

21.904%

Step-by-step explanation:

According to the CAPM :

Required return = risk free rate + (beta x expected market return)

3.20% + (1.67 x 11.20%) = 21.904%

User Excel
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