Bell Weather Ltd has a beta of 1.25.The return on the market portfolio is 12.5%, and the risk-free rate is 5%.According to CAPM, what is the required return on this shares?
A)20.62%
B)9.37%
C)14.38%
D)15.62%

Question

Quizplus · Accepted Answer

The Capital Asset Pricing Model (CAPM) formula is: Expected Return = Risk-Free Rate + Beta * (Market Return - Risk-Free Rate). Plugging in the values: 5% + 1.25 * (12.5% - 5%) = 5% + 1.25 * 7.5% = 5% + 9.375% = 14.375%. Rounded to two decimal places, it is 14.38%.

Bell Weather Ltd Has a Beta of 1