The risk-free rate of return is 2.2 percent, the expected market return is 11 percent, and the beta for Solstice, Inc. is 1.12. What is Solstice's required rate of return?
A) 8.80%
B) 12.06%
C) 13.20%
D) 14.30%

Question

Quizplus · Accepted Answer

The required rate of return can be calculated using the Capital Asset Pricing Model (CAPM) formula: Required Return = Risk-Free Rate + Beta * (Market Return - Risk-Free Rate). Plugging in the values: Required Return = 2.2% + 1.12 * (11% - 2.2%) = 2.2% + 1.12 * 8.8% = 2.2% + 9.86% = 12.06%.

The Risk-Free Rate of Return Is 2