The average market return is 6 per cent and the risk- free return is 4 per cent. If beta for a particular share is 1.5, what is the required rate of return on the shares?

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Quizplus · Accepted Answer

The required rate of return on the shares is 7%. This is because the required rate of return is equal to the risk-free rate plus the beta of the share multiplied by the market risk premium. In this case, the risk-free rate is 4%, the beta of the share is 1.5, and the market risk premium is 6% - 4% = 2%. Therefore, the required rate of return is 4% + 1.5 * 2% = 7%.

The Average Market Return Is 6 Per Cent and the Risk-