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The beta of Stock A is –0.7 (indicating that its returns rise when returns on most...

The beta of Stock A is –0.7 (indicating that its returns rise when returns on most other stocks fall). If the risk-free rate is 4.7 percent and the expected rate of return on an average stock is 11 percent, what is the required rate of return on Stock A?

a.

0.29%
b.

12.40%
c.

4.41%
d.

–3.00%
e.

9.11%
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Answer #1

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

=4.7-0.7*(11-4.7)

which is equal to

=0.29%

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