The beta for the DAK Corporation is 1.25. The yield on 30-year T-bonds is 5.65 percent, and the long-term average return on the S&P 500 is 11 percent. Calculate the required rate of return for DAK Corporation.
A) 12.34 percent
B) 7.06 percent
C) 13.74 percent
D) 5.35 percent
E) 5.65 percent

Question

Quizplus · Accepted Answer

The required rate of 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: 5.65% + 1.25 * (11% - 5.65%) = 12.34%.

The Beta for the DAK Corporation Is 1