Zoro Corp. has a beta of 2.0. The risk-free rate of interest is 5 percent, and the return on the stock market overall is expected to be 13 percent. What is the required rate of return on Zoro stock?
A) 21 percent
B) 41 percent
C) 16 percent
D) 13 percent
E) None of these are correct.

Question

Zoro Corp. has a beta of 2.0. The risk-free rate of interest is 5 percent, and the return on the stock market overall is expected to be 13 percent. What is the required rate of return on Zoro stock?
A) 21 percent
B) 41 percent
C) 16 percent
D) 13 percent
E) None of these are correct.
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Quizplus · Accepted Answer

The required rate of return on Zoro stock can be calculated using the Capital Asset Pricing Model (CAPM) formula: Required Return = Risk-Free Rate + Beta * (Market Return - Risk-Free Rate). Plugging in the values: Required Return = 5% + 2.0 * (13% - 5%) = 5% + 2.0 * 8% = 5% + 16% = 21%.

Zoro Corp Has a Beta of 2