A company has a beta of 3.25. If the market return is expected to be 14 percent and the risk-free rate is 5.5 percent, what is the company's required return?
A) 22.750 percent
B) 33.125 percent
C) 45.500 percent
D) 51.000 percent

Question

Quizplus · Accepted Answer

The company's required return 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 given values: Required Return = 5.5% + 3.25 * (14% - 5.5%) = 5.5% + 3.25 * 8.5% = 5.5% + 27.625% = 33.125%.

A Company Has a Beta of 3