Assume that you are considering investing in Xerox common stock.You have found that its beta is +1.2 and you think a market risk premium should be 8%.If you could earn 12% on risk-free Treasury securities,Xerox has a required return of ________%.
A)24.0
B)14.4
C)21.6
D)22.4

Question

Quizplus · Accepted Answer

The required return for Xerox can be calculated using the Capital Asset Pricing Model (CAPM):

Required return = Risk-free rate + Beta x (Market risk premium)
Required return = 12% + 1.2 x 8%
Required return = 12% + 9.6%
Required return = 21.6%

Therefore, the best choice is C.

Assume That You Are Considering Investing in Xerox Common Stock