Assume that the risk-free rate is 5 percent, and that the market risk premium is 7 percent. If a stock has a required rate of return of 13.75 percent, what is its beta?
A) 1.25
B) 1.35
C) 1.37
D) 1.60
E) 1.96

Question

Quizplus · Accepted Answer

The required rate of return is calculated using the CAPM formula: Required return = Risk-free rate + Beta * Market risk premium. Plugging in the values: 13.75% = 5% + Beta * 7%. Solving for Beta gives Beta = (13.75% - 5%) / 7% = 1.25.

Assume That the Risk-Free Rate Is 5 Percent, and That