Question

Assume that the risk-free rate is 2.5% and the expected return on the market is 12%. What is the required rate of return on a stock with a beta of 1.1?

Answer 1

12.95%

Step-by-step explanation:

Given:

Risk-free rate (rRF) = 2.5%

Expected return on the market (rm) = 12%

Stock beta (bs) = 1.1

(rRF) + (rm - rRF)(bs)

0.025 + (0.12 - 0.025) (1.1)

0.025 + 0.095 (1.1)

0.025 + 0.1045

0.1295

12.95%