Answered

Zacher Co.'s stock has a beta of 1.40, the risk-free rate is 4.25%, and the market risk premium is 5.50%. What is the firm's required rate of returna.11.36%

b.11.65%

c.11.95%

d.12.25%

e.12.55%

Answer :

Answer:

c.11.95%

Explanation:

For this question, we use the Capital Asset Pricing Model (CAPM) formula which is presented below:

The Required rate of return = Risk-free rate of return + Beta × (Market rate of return - Risk-free rate of return)

where,

The Market rate of return - Risk-free rate of return) is also called as the market risk premium.

= 4.25% + 1.40 × 5.50%

= 4.25% + 7.7%

= 11.95%

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