Given the data below for the Zoom Corporation,its required return is
1.Beta = 0.8
2.Expected price appreciation = 7%
3.Market risk premium = 8%
4.Risk free rate = 4%
5.Next year's dividend = $1.00
6.Current market price = $50

Question

Quizplus · Accepted Answer

The required return can be calculated using the Capital Asset Pricing Model (CAPM) formula: Required Return = Risk-Free Rate + Beta * (Market Risk Premium) + (Dividend Yield). Plugging in the given values: Required Return = 4% + 0.8 * 8% + ($1 / $50) = 4% + 6.4% + 2% = 12.4%. However, the expected price appreciation is not part of the CAPM formula and was mistakenly included in the calculation. The correct calculation using CAPM is: Required Return = Risk-Free Rate + Beta * (Market Risk Premium) = 4% + 0.8 * 8% = 4% + 6.4% = 10.4%.

Given the Data Below for the Zoom Corporation,its Required Return