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    Rate of return

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    A stock has a beta of 1.6, the risk free rate is 4% and the expected market return is 10%. What is the required rate of return using the CAPM model? If the expected return for the stock is 14%, would you recommend purchasing the shares now? Explain your answer in detail.

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    https://brainmass.com/economics/finance/rate-return-using-capm-264866

    Solution Preview

    We first calculate the required rate of return using CAPM
    Required rate of return = Rf + (Rm-Rf) beta
    Where Rf = risk free rate = 4%, Rm = market return = 10% and beta = 1.6
    Required rate of return = 4% + (10%-4%) 1.6 = 13.6%

    The expected rate of return is 14%. The stock ...

    Solution Summary

    This solution explains how to calculate the rate of return using the capital asset pricing model (CAPM)

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