Calculation of Required Rate of Return on a Stock
Not what you're looking for?
Assume that the risk-free rate is 6% and the expected return on the market is 13%. What is the required rate of return on a stock with a beta of .7?
Purchase this Solution
Solution Summary
The solution is a calculation of the required rate of return on a stock with given rates including risk free, market, and beta.
Solution Preview
Here are the terms and the formula for calculating the expected return:
Terms
Required Rate: Ke
Risk Free Rate: Rf
b: Beta Coefficient
Km: Expected Return
Formula
Ke=Rf + b(Km-Rf)
Solve as follows:
Trying to solve for Ke, Rf is given as 6%, b is given as 0.7, Km is given as 13%
Ke=Rf + b(Km-Rf)
Ke=6% + 0.7(13%-6%)
Ke=6% + 0.7(7%)
Ke=6% + 4.9%
Ke=10.9%
The required rate is 10.9%
Here's an explanation of why:
Basically, we are trying to figure your required rate of return on a stock with relatively low volatility ...
Purchase this Solution
Free BrainMass Quizzes
Transformational Leadership
This quiz covers the topic of transformational leadership. Specifically, this quiz covers the theories proposed by James MacGregor Burns and Bernard Bass. Students familiar with transformational leadership should easily be able to answer the questions detailed below.
Basic Social Media Concepts
The quiz will test your knowledge on basic social media concepts.
Situational Leadership
This quiz will help you better understand Situational Leadership and its theories.
MS Word 2010-Tricky Features
These questions are based on features of the previous word versions that were easy to figure out, but now seem more hidden to me.
Managing the Older Worker
This quiz will let you know some of the basics of dealing with older workers. This is increasingly important for managers and human resource workers as many countries are facing an increase in older people in the workforce