Asset P has a beta of 0.9. The risk- free rate of return is 8%, while the return on the market portfolio of assets is 14%. The asset's required rate of return is
A) 13.4%
B) 5.4%
C) 10%
D) 6%

Question

Quizplus · Accepted Answer

The Capital Asset Pricing Model (CAPM) formula is: 
Required Rate of Return = Risk-Free Rate + Beta of Asset x (Market Return - Risk-Free Rate)

Plugging in the numbers given:
Required Rate of Return = 8% + 0.9 x (14% - 8%)
Required Rate of Return = 8% + 0.9 x 6%
Required Rate of Return = 8% + 5.4%
Required Rate of Return = 13.4%

Therefore, the answer is choice letter A.

Asset P Has a Beta of 0