Zoro Corporation has a beta of 2.0. The risk-free rate of interest is 5%, and the return on the stock market overall is expected to be 13%. What is the required rate of return on Zoro stock?
A) 21%.
B) 41%.
C) 16%.
D) 13%.
E) none of the above

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) = 5% + 2.0 * (13% - 5%) = 5% + 16% = 21%.

Zoro Corporation Has a Beta of 2