The companys stock has a beta equal to 137 the risk free rat

The company\'s stock has a beta equal to 1.37, the risk free rate is 4.5 percent, and the market risk premium is 6 3 percent. What is your estimate of the stocks required rate of return? Answer m a percentage without the % 31m, and round it to two dec mal places e, 10.54 for 10.54% or 0.1054)

Solution

Information Given:   Risk Free Rate (Rf) 4.5% Market Risk Premium (MRp)   6.30% Beta of stock (B) 1.37 Required Rate of Return ??? As per CAPM Required Rate of Return = Rf+B(Rm-Rf) Market Risk Premium (MRp)= Return of Market(Rm) - Risk Free Rate (Rf) Required Rate of Return = 4.50+1.37(6.30) = 13.13 or 0.1313