Find the required rate of return for equity investors of a firm with a beta of 1.3 when the risk free rate is 5%,the market risk premium is 5%,and the return on the market is 10%.

Question

Quizplus · Accepted Answer

The required rate of return for equity investors is calculated using the Capital Asset Pricing Model (CAPM):Required rate of return = Risk-free rate + Beta * Market risk premiumGiven:Risk-free rate = 5%Beta = 1.3Market risk premium = 5%Return on the market = 10%Required rate of return = 5% + 1.3 * 5% = 11.5%Therefore, the correct choice is A: 11.5%.

Find the Required Rate of Return for Equity Investors of a Firm