A company has a beta of 0.85. If the market return is expected to be 9 percent and the risk-free rate is 2.5 percent, what is the company's required return?
A) 7.350 percent
B) 8.025 percent
C) 10.150 percent
D) 21.775 percent

Question

Quizplus · Accepted Answer

The company's required return can be calculated using the Capital Asset Pricing Model (CAPM) formula: Required Return = Risk-Free Rate + Beta * (Market Return - Risk-Free Rate). Plugging in the given values: Required Return = 2.5% + 0.85 * (9% - 2.5%) = 2.5% + 0.85 * 6.5% = 2.5% + 5.525% = 8.025%.

A Company Has a Beta of 0