CAPM Required Return A company has a beta of 0.50. If the market return is expected to be 12 percent and the risk-free rate is 5 percent, what is the company's required return?
A) 6.0%
B) 8.5%
C) 11.0%
D) 13.5%

Question

Quizplus · Accepted Answer

Using the Capital Asset Pricing Model (CAPM), the required return for the company can be calculated as follows:

Required Return = Risk-Free Rate + Beta * (Market Return - Risk-Free Rate)
Required Return = 5% + 0.50 * (12% - 5%)
Required Return = 5% + 0.50 * 7%
Required Return = 8.5%

Therefore, the correct answer is B) 8.5%.

CAPM Required Return a Company Has a Beta of 0