The real risk-free rate is 2%,the expected inflation rate is 3.00%,the market risk premium is 4.70%,and Kohers Enterprises has a beta of 1.10.What is the required rate of return on Kohers' stock?
A)9.43%
B)9.67%
C)9.92%
D)10.17%

Question

Quizplus · Accepted Answer

The required rate of return can be calculated using the Capital Asset Pricing Model (CAPM): Required return = Risk-free rate + Beta * Market risk premium. Here, it is 2% + 1.10 * 4.70% = 7.17%. Adding the expected inflation rate of 3% gives 10.17%.

The Real Risk-Free Rate Is 2%,the Expected Inflation Rate Is