ABC, Inc

Finance Sep 06, 2020

ABC, Inc., has a beta of 1.77. The risk-free rate is 4.02% and the market risk premium (=expected return on market portfolio minus risk-free rate) is 5.46%. What is the required rate of return on ABC's stock?

Expert Solution

Computation of the required rate of return for ABC's stock:-

Required rate of return = Risk free rate + (Beta * Market risk premium)

= 4.02% + (1.77 * 5.46%)

= 4.02% + 9.66%

= 13.68%

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