Given a stock with a beta of 1.2, risk free rate of 4%, and a market return of 10%, calculate the required return.

Question

asked Feb 7, 2021 205k views

1 Answer

Anders Vestergaard · Answer 1 · 2021-02-12T21:45:14+0000

Answer: 11.2%

Step-by-step explanation:

The required return of this stock can be calculated using the Capital Asset Pricing Model (CAPM) which is expressed as follows;

Required return = Risk free rate + beta ( Market return - risk free rate)

= 4% + 1.2 ( 10% - 4%)

= 11.2%