The risk free rate is 7%, the return in the market is 10%, and the beta...
The risk free rate is 7%, the return in the market is 10%, and the beta is 1.30. What return must you receive to be satisfied that you are being fairly ]for the risk of the firm? Using excel to solve
Homework Answers
The rate of return that must be received to be satisfied shall be the required rate of return calculated by using the Capital Asset Pricing Model (CAPM)
As per Capital Asset Pricing Model [CAPM], the Required rate of return is computed by using the following equation
Required rate of return = Risk-free Rate + Beta[Market Rate of Return – Risk-free Rate]
= Rf + B[Rm – Rf]
= 7.00% + 1.30[10.00% - 7.00%]
= 7.00% + [1.30 x 3.00%]
= 7.00% + 3.90%
= 10.90%
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