Question

Cooley Company's stock has a beta of 0.60, the risk-free rate is 2.25%, and the market risk premium is 5.50%. What is the firm's required rate of return? Do not round your intermediate calculations. 5.55% 4.38% 6.60% 6.16% 4.66%

Answer 1

	Ra = Rrf   +   ( B a     X   R p)
	Ra = Expected return on a security
	Rrf = Risk-free rate
	Ba = Beta of the security
	Rm = Expected return on market
	Rp = Risk Premiun
	Stock	Rrf %	"+"	"(	Beta	"X"	Rp)
	Stock = R a =	2.25%	"+"	"(	0.60	"X"	5.50%	)"
	Stock	Rrf %	"+"		Beta X Rp
	Stock = R a =	2.25%	"+"		3.30%
	Stock = R a =	5.55%
	Answer = Option 1 = 5.55%