You have gathered the following information concerning a particular investment and conditions in the market. According to the Capital Asset Pricing Model, the required return for this investment is
A) 8.85%.
B) 11.48%.
C) 13.98%.
D) 14.85%.

Question

You have gathered the following information concerning a particular investment and conditions in the market.  According to the Capital Asset Pricing Model, the required return for this investment is
A) 8.85%. 
B) 11.48%. 
C) 13.98%. 
D) 14.85%.

Quizplus · Accepted Answer

The Capital Asset Pricing Model (CAPM) is used to determine the required return for an investment. The CAPM formula is: Required return = Risk-free rate + Beta (Market return - Risk-free rate). Using the information given, we can calculate the required return for this investment as follows: Required return = 3.5% + 1.3(10% - 3.5%) = 13.98%. Therefore, the answer is choice C.

You Have Gathered the Following Information Concerning a Particular Investment