Question

Assume that the risk-free rate is 2.5% and the market risk premium is 8%. What is the required return for the overall stock market? Round your answer to one decimal place.

What is the required rate of return on a stock with a beta of 0.6? Round your answer to one decimal place.

Answer 1

a)	Required Return =	Risk free Return + (Market Return - Risk free return)* Beta
	Required Return =	Risk free Return + Market Risk Premium * Beta
	Required Return =	2.5% + 8% * 1
	Required Return =	10.5%
b)	Required Return =	Risk free Return + (Market Return - Risk free return)* Beta
	Required Return =	Risk free Return + Market Risk Premium * Beta
	Required Return =	2.5% + 8% * 0.6
	Required Return =	7.3%