Question

Mark is trying yo calculate the current market rate given the following information: Investor's have been requiring a 12% annual return on Mark's stock which has a beta of 2.0 and the current risk-free rate is 4%. What is the current market rate?

Answer 1

Ans 8%

Required Return =	Risk free Return + (Market Return - Risk free return)* Beta
12.0% =	4% + (Market Return - 4%) * 2.0
12% - 4% =	(Market Return - 4%) * 2.0
8% / 2 =	Market Return - 4%
4% + 4% =	Market Return
Market Return =	8%