Using the CAPM, calculate the discount rate for a stock assuming that the risk-free rate is...

Question

Question

Using the CAPM, calculate the discount rate for a stock assuming that the risk-free rate is 4%, the stock’s beta is 1.05, and the market return is 11%.
1. 5.05%
2. 11.35%
3. 15.20%
4. Cannot be determined with information provided

business finance

Answer 1

Answer #1

Discount Rate = Risk free rate + (market return - risk free rate) * Beta

= 4% + ( 11% -4%) *1.05

= 11.35%

Hence the correct answer is b. 11.35%

Answer 2

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