A stock's required return depends upon
A)only its beta value.
B)its beta value and the risk-free rate of return.
C)its beta value,the risk-free rate of return,and the market risk premium.
D)its beta value,the risk-free rate of return,the market risk premium,and its alpha value.

Question

Quizplus · Accepted Answer

A stock's required return depends on its beta value, which measures the stock's volatility relative to the market. In addition to beta, the required return also depends on the risk-free rate of return and the market risk premium. The risk-free rate is the return an investor can earn on a risk-free asset such as a government bond, while the market risk premium is the excess return that investors require to invest in a risky asset such as stocks rather than a risk-free asset. Therefore, the best choice is C, which includes all three factors that affect a stock's required return.

A Stock's Required Return Depends Upon