Question

Suppose risk free rate of return, TF -4% and the market risk premium

rpm-5%, what is the appropriate required rate of return for a stock that has a beta coefficient equal to 2.0?

Answer 1

R= rRF+(Rm-rRF)* B

R=Required Return

rRF=Risk free rate

Rm-Market return

B-Beta

rRF=4%, Rm=5%, B=2.0

R=4%+(5%-4%)*2.0=6%