Question
According to CAPM (Capital Asset Pricing Model), what is
the required rate of return for a stock with a beta of 0.7 when the risk-free rate is 5% and the expected rate of return is 15%Solution
Required rate of return (CAPM Model) = 0.05 + 0.7 (0.15 – 0.05) = 0.05 + 0.07 = 0.12 ~ 12%
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