USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM InvestmentBetaAnalyst's Estimated ReturnStock X2.315.5%Stock Y1.213.6%Market Portfolio1.011.5%Risk-free rate 4.0%What is the required rate of return for Stock X based on the capital asset pricing model (CAPM)?

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What is the required rate of return for Stock X based on the capital asset pricing model (CAPM)?

Corporate Fin Focused Approach

5th Edition

ISBN:9781285660516

Author:EHRHARDT

Publisher:EHRHARDT

Chapter6: Risk And Return

Section: Chapter Questions

Problem 14P

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Question

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM

Investment	Beta	Analyst's Estimated Return
Stock X	2.3	15.5%
Stock Y	1.2	13.6%
Market Portfolio	1.0	11.5%
Risk-free rate		4.0%

What is the required rate of return for Stock X based on the capital asset pricing model (CAPM)?

Definition Definition Model that illustrates the correlation between the expected return and risk of capital investment in stock. According to this model, the expected rate of return on equity is equal to the risk-free return added to a risk premium, which is based on the stock beta.

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