The beta of a firm's equity in Switzerland is 1.25. The risk-free rate is 4 percent and market risk premium is 8.4 percent. Calculate the required rate of return for the equity of this firm.

Question

Quizplus · Accepted Answer

Required rate of return = risk-free rate + (beta * market risk premium)
= 4% + (1.25 * 8.4%)
= 4% + 10.5%
= 14.5% 
Therefore, the required rate of return for the equity of this firm is 14.5%.

The Beta of a Firm's Equity in Switzerland Is 1