MacroN Company has a beta of 1.75. By what percent will the required rate of return on the stock of MacroN Company increase if the expected market rate of return rises by 4%?

Question

Quizplus · Accepted Answer

The required rate of return on a stock can be calculated using the Capital Asset Pricing Model (CAPM), which is given by the formula: Required Return = Risk-Free Rate + Beta * (Market Return - Risk-Free Rate). In this scenario, we are only concerned with the change in the market return, which affects the required return through the term Beta * (Market Return - Risk-Free Rate). Since the beta is 1.75, a 4% increase in the market return would lead to a 1.75 * 4% = 7% increase in the required rate of return on the stock of MacroN Company.

MacroN Company Has a Beta of 1