Question 1

The beta of McGrow Co. is 1.2. The risk-free rate is 3.5 percent and the expected return on the market is 8 percent. What is the stock’s required return?

A. 8.9 percent.

B. 6.2 percent.

C. 9.6 percent.

Solution

Answer is: A

E(R) = k=rf+ beta * (Rm-Rf) =0.035+1.2 * (0.08-0.035) =0.089