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Homework answers / question archive / The following data are related to Samba stock: Required return on Samba common Beta coefficient Risk-free rate The required market return is A
The following data are related to Samba stock: Required return on Samba common Beta coefficient Risk-free rate
The required market return is A. 13.0 percent B. 18.0 percent C. 25.0 percent D. 16.0 nercent
15 percent 1.5 9.0 percent
Answer
A .
Explanation
Computation of Required Market Return:
Required return on Samba Common = Risk-free Rate + Beta Coefficient*(Required Market Return - Risk-free Rate)
15% = 9% + 1.5*(Required Market Return - 9%)
15%-9% = 1.5*Required Market Return - 13.5%
6% + 13.5% = 1.5*Required Market Return
1.5*Required Market Return = 19.50%
Required Market Return = 19.50%/1.5
Required Market Return = 13%
