Assume that the riskfree rate is 45 and that the market risk

Assume that the risk-free rate is 4.5% and that the market risk premium is 6%.

What is the required rate of return on a stock with a beta of 1.2? Round your answer to two decimal places. %

What is the required rate of return on a stock with a beta of 1.7? Round your answer to two decimal places. %

What is the required return on the market? Round your answer to two decimal places. %

Solution

Since the risk free rate is 4.5%, and the market risk premium is 6%, The required return on the market = Market Risk Premium - Risk Free Rate = 6% - 4.5% = 1.5% Required Rate of Return on a Stock with a Beta of 1.2 = 1.2 X 1.5% = 1.80% Required Rate of Return on a Stock with a Beta of 1.7 = 1.7 X 1.5% = 2.55%