Question

If the risk free rate is 4 %, the expected return on the market portfolio is 12% and the beta of Stock B is 0.9 , what is the required rate of return for Stock B according to the Capital Asset Pricing Model (CAPM)?

Answer 1

172.8%

Step-by-step explanation:

The risk free rate is 4%

The expected return on the market portfolio is 12%

The beta is 0.9

Therefore the required rate of return can be calculated as follows

= 4 × 0.9(12×4)

= 4 × 0.9(48)

= 4 × 43.2

= 172.8%

Hence the required rate of return is 172.8%