Problem 8-5 Beta and required rate of return A stock has a required return of 12%;...

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Problem 8-5 Beta and required rate of return A stock has a required return of 12%; the risk-free rate is 6%; and the market r

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Answer 1

Answer #1

As per CAPM, required rate of return = Risk free rate + beta*market risk premium

12% = 6% + beta*4%

Hence, beta = 1.5

Required rate of return = 6% + 1.5*10%

= 21%

V.If the Stock beta is greater than 1, change in required rate of return will be greater than change in market risk premium

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Answer 2

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Problem 8-5 Beta and required rate of return A stock has a required return of 12%;...

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Add Answer to: Problem 8-5 Beta and required rate of return A stock has a required return of 12%;...

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