The risk-free rate of return is 5.51%, based on an expected inflation premium of 2.54%. The expected return on the market is 12.8%. What is the required rate of return for Envoy common stock which has a beta of 1.35?
A) 6.98%
B) 16.24%
C) 15.35%
D) 12.80%

Question

Quizplus · Accepted Answer

The required rate of return can be calculated using the Capital Asset Pricing Model (CAPM): Required return = Risk-free rate + Beta * (Market return - Risk-free rate). Substituting the given values: 5.51% + 1.35 * (12.8% - 5.51%) = 15.35%.

The Risk-Free Rate of Return Is 5