Light Limited (LL) has assumed its shareholders need a 10% required rate of return. The market return is 15% for next year. Meanwhile, long term government bonds can be purchased with a yield to maturity of 5%. what is the implied beta for LL?

Question

Quizplus · Accepted Answer

The implied beta can be calculated using the Capital Asset Pricing Model (CAPM): Required Return = Risk-Free Rate + Beta * (Market Return - Risk-Free Rate). Here, 10% = 5% + Beta * (15% - 5%). Solving for Beta gives Beta = 0.50.

Light Limited (LL) Has Assumed Its Shareholders Need a 10