Westsyde Tool Company is expected to pay a dividend of $1.50 in the upcoming year. The risk-free rate of return is 6% and the expected return on the market portfolio is 14%. Analysts expect the price of Westsyde Tool Company shares to be $29 a year from now. The beta of Westsyde Tool Company's shares is 1.20. Using the CAPM, an appropriate required return on Westsyde Tool Company's shares is ________.

Question

Quizplus · Accepted Answer

The required return using CAPM is calculated as: Risk-free rate + Beta * (Market return - Risk-free rate) = 6% + 1.20 * (14% - 6%) = 15.6%.

Westsyde Tool Company Is Expected to Pay a Dividend of $1.50