Calculate the required rate of return for Mars Inc.'s stock. The Mars's beta is 1.2, the rate on a T-bill is 4 percent, the rate on a long-term T-bond is 6 percent, the expected return on the market is 11.5 percent, the market has averaged a 14 percent annual return over the last six years, and Mars has averaged a 14.4 return over the last six years.
A) 12.6%
B) 13.2%
C) 14.0%
D) 15.6%
E) 16.2%

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). Using the T-bill rate as the risk-free rate: 4% + 1.2 * (11.5% - 4%) = 12.6%.

Calculate the Required Rate of Return for Mars Inc