Question

Find the market required rate of return if stock A with βA=0.8 has a required return of 15% while stock B with βB=1.2 has a required return of 20%?

Answer 1

rate positively ..

	as per CAPM required rate = Risk free rate +(Market rate- Risk free rate)*Beta
	Lets assume Risk free rate = x and (market rate - Risk free rate) = y
	we have below two equation
	15% = x+y*0.8
	20%=x+y*1.2
	y =12.5%
	x = 15%-12.5%*0.8
	x=	5.00%
	market required rate = 5%+12.5%
		17.50%
	answer =	17.50%