You have determined that a stock has a required rate of return of 18%.If the market risk premium is 10.50%,and the 91 day T-bill is yielding 2.50%,what is the stock's Beta?

Question

Quizplus · Accepted Answer

The formula for required rate of return (RRR) is:

RRR = Risk-Free Rate + Beta * Market Risk Premium

We are given:

RRR = 18%
Market Risk Premium = 10.50%
Risk-Free Rate = 2.50%

Substitute these values in the formula and solve for Beta:

18% = 2.50% + Beta * 10.50%

Beta = (18% - 2.50%) / 10.50%

Beta = 1.48

Therefore, the stock's Beta is 1.48, and the best choice is (C).

You Have Determined That a Stock Has a Required Rate