14. Kimberly Motors has a beta of 1.40. the Thill rate is 3.00%, and the T-bond...

Question

Question

business finance

Answer 1

Answer #1

To arrive at the firm's required rate of return, we will use the Capital Asset Pricing Model (CAPM)

As per CAPM :-

Firm's required rate of return = Risk free Rate of Return + Beta of the Stock * (Expected Rate of Return of Market - Risk free Rate of Return)

Risk free Rate of Return = T-bond rate of 7%

Beta of Stock = 1.4

Expected Rate of Return of Market = 13%

Hence, Firm's required rate of return = 7% + 1.40 * ( 13% - 7%)

= 7% + 8.4% = 15.4%

Hence, Answer is Option E

Answer 2

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