The anticipated market return is 15 percent. The risk-free rate is 4 percent, and BC Co. has a beta equal to one-half of the market beta. Its required rate of return is:

Question

Quizplus · Accepted Answer

The required rate of return can be calculated using the Capital Asset Pricing Model (CAPM), which is: Required Return = Risk-Free Rate + Beta * (Market Return - Risk-Free Rate). Given that BC Co. has a beta of one-half the market beta (assuming market beta is 1, so BC Co.'s beta = 0.5), the calculation is: Required Return = 4% + 0.5 * (15% - 4%) = 4% + 0.5 * 11% = 4% + 5.5% = 9.5%.

The Anticipated Market Return Is 15 Percent