Question

To calculate the required rate of return using the CAPM, an analyst would require: the firm’s beta, the inflation rate in the economy, and the market return. the firm’s beta, the inflation rate in the economy, and the risk free rate. the firm’s beta, the market return, and the risk free rate. the firm’s beta and the risk free rate.

Answer 1

Required Return can be calculated using CAPM by means of the following relationship:

R = Rf + Beta x (Rm - Rf) where Rf is the risk-free rate. Rm is the market return, R is the required return and Beta is the firm's beta.

Hence, the required return determination using CAPM needs the firm's beta, market return, and the risk-free rate.