If the risk-free rate is 6 percent, the return on an average stock is 10 percent, and the beta of a capital budgeting project is 1.50, the project's required rate of return from the project is _____.
A)12%
B)24%
C)4%
D)19%
E)21%

Question

If the risk-free rate is 6 percent, the return on an average stock is 10 percent, and the beta of a capital budgeting project is 1.50, the project's required rate of return from the project is _____. 
A)12%
B)24%
C)4%
D)19%
E)21%

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: 6% + 1.50 * (10% - 6%) = 12%.

If the Risk-Free Rate Is 6 Percent, the Return on an Average