15. Newsome's stock has a beta of 1.20, Its required return is 11.50%, and the risk-free rate the required rate of...

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Question

Answer 1

Answer #1

Required return = Risk free rate + Market risk premium * Beta
11.50% = 4.30% + Market risk premium * 1.20
11.50% - 4.30% = Market risk premium * 1.20
7.20% = Market risk premium * 1.20
Market risk premium = 7.20% / 1.20	6.00%

Market risk premium = Required rate of return on the market - Risk free rate
6.00% = Required rate of return on the market - 4.30%
Required rate of return on the market = 6.00% + 4.30%	10.30%	Option a

Answer 2

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