Question

AA Corporation's stock has a beta of 0.7. The risk-free rate is 6%, and the expected return on the market is 8%. What is the required rate of return on AA's stock? Do not round intermediate calculations. Round your answer to one decimal place.

Answer 1

7.4%

Step-by-step explanation:

Risk-free rate of return: 6%

Market Rate of return: 8%

Beta: 0.7

1. Subtract the risk-free rate of return from the market rate of return.

8%-6%= 2% or .02

2. Multiply the above figure by the beta of the security.

.02 * 0.7= .014

3. Add this result to the risk-free rate to determine the required rate of return.

.014 + .06 = .074 or 7.4%

Answer 2

the required return is 7.4%

Step-by-step explanation:

The computation of the required rate of return is shown below:

Required rate of return is

= Risk free rate + beta × (market rate of return - risk free rate)

= 6% + 0.7 × (8% - 6%)

= 6% + 0.7 × 2%

= 6% + 1.4%

= 7.4%

Hence, the required return is 7.4%

We simply applied the above formula so that the correct value could come

And, the same is to be considered