Stock X has a beta of 0

Finance Jan 22, 2021

Stock X has a beta of 0.9. The risk-free rate of return is 5 percent, while the return on the market is 14 percent. The stock's required rate of return is a. 13.1 percent O b.9.0 percent O c. 8.1 percent O d. 10 percent

Expert Solution

The rate of return is computed as follows:

= risk free rate + Beta x (return on market - risk free rate)

= 5% + 0.9 x (14% - 5%)

= 5% + 0.9 x 9%

= 5% + 8.1%

= 13.1%

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