Fools Gold Mining Company is expected to pay a dividend of $8 in the upcoming year.Dividends are expected to decline at the rate of 2% per year.The risk-free rate of return is 6% and the expected return on the market portfolio is 14%.The stock of Fools Gold Mining Company has a beta of -0.25.The return you should require on the stock is ________.
A)2%
B)4%
C)6%
D)8%
E)none of the above

Question

Quizplus · Accepted Answer

The required return can be calculated using the Capital Asset Pricing Model (CAPM): Required return = Risk-free rate + Beta * (Market return - Risk-free rate). Substituting the given values: Required return = 6% + (-0.25) * (14% - 6%) = 6% - 2% = 4%.

Fools Gold Mining Company Is Expected to Pay a Dividend