The current T-Bill rate is 3%, and the market risk premium is 9%.If Arabica Coffee Company has a beta of 1.75, its required return on equity is:

Question

Quizplus · Accepted Answer

The required return on equity can be calculated using the Capital Asset Pricing Model (CAPM) formula:
Required return on equity = Risk-free rate + Beta x Market Risk Premium
= 3% + 1.75 x 9%
= 3% + 15.75%
= 18.75%
Therefore, the required return on equity for Arabica Coffee Company is 18.75%, which is option D.

The Current T-Bill Rate Is 3%, and the Market Risk