Medical Supply Company has a beta of 1

Finance Dec 24, 2020

Medical Supply Company has a beta of 1.55 and recently paid a common stock dividend of $3.47. If the return on Treasury securities is currently 7.5% and the return on the S&P 500 index is 12%, what is the required rate of return on the firm's common stock? Group of answer choices 7.5% 18.5% 14.48% 12.93% 26.1%

Expert Solution

As per CAPM

expected return = risk-free rate + beta * (expected return on the market - risk-free rate)

Expected return% = 7.5 + 1.55 * (12 - 7.5)

Expected return% = 14.48

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