What is the required rate of return on equity?

Name: What is the required rate of return on equity?
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Question

Quizplus · Accepted Answer

The required rate of return on equity can be calculated using the Capital Asset Pricing Model (CAPM) formula: R(equity) = R(free) + β(equity) x [R(market) - R(free)]. Given the information provided, R(free) = 3.5%, R(market) = 11%, and β(equity) = 1.2. Therefore, R(equity) = 3.5% + 1.2 x (11% - 3.5%) = 15.2%. Choice C is the closest answer.

What Is the Required Rate of Return on Equity