The expected market return is 16 percent. The risk-free rate of return is 7 percent, and BC Co. has a beta of 1.1. Their required rate of return is
A) 17.6 percent.
B) 16.0 percent.
C) 16.9 percent.
D) 23.0 percent.

Question

Quizplus · Accepted Answer

The required rate of return for BC Co. is calculated using the CAPM formula which takes into account the expected market return and the risk-free rate of return, along with the beta of the company. The formula is: Expected return = risk-free rate + beta * (expected market return - risk-free rate). Plugging in the given values, we get required return = 7 + 1.1(16 - 7) = 16.9 percent. Therefore, choice C is the correct answer.

The Expected Market Return Is 16 Percent