Nagel Equipment has a beta of 0.88 and an expected dividend growth rate of 4.00% per year.The T-bill rate is 4.00%,and the T-bond rate is 5.25%.The annual return on the stock market during the past 4 years was 10.25%.Investors expect the average annual future return on the market to be 12.50%.Using the SML,what is the firm's required rate of return? Do not round your intermediate calculations.
A) 11.63%
B) 12.44%
C) 12.68%
D) 12.33%
E) 10.35%

Question

Quizplus · Accepted Answer

The correct answer is A.The required rate of return using the SML is:r = Rf + β * (Rm - Rf)= 4.00% + 0.88 * (12.50% - 4.00%)= 11.63%

Nagel Equipment Has a Beta of 0