Asset P has a beta of 0.9. The risk-free rate of return is 8 percent, while the return on the marketportfolio of assets is 14 percent. The asset's required rate of return is
A) 6.0 percent.
B) 10 percent.
C) 5.4 percent.
D) 13.4 percent.

Question

Quizplus · Accepted Answer

The required rate of return can be calculated as:

Required rate of return = risk-free rate + beta × (market return - risk-free rate)

So,

Required rate of return = 8% + 0.9 × (14% - 8%)

Required rate of return = 8% + 0.9 × 6%

Required rate of return = 8% + 5.4%

Required rate of return = 13.4%

Therefore, the asset's required rate of return is 13.4%, which is answer D.

Asset P Has a Beta of 0