Use the security market line to determine the required rate of return for the following firm's stock
The firm has a beta of 1.25, the required return in the market place is 10.50%, the standard deviation of returns for the market portfolio is 25.00%, and the standard deviation of returns for your firm is also 25.00%.
A) 13.13%
B) 10.50%
C) 31.25%
D) There is not enough information to answer this question.
Answer: D
Explanation: D) Re = E(ri) = rf + [E(rm) - rf] βi.
This problem lacks information about the risk-free rate of return, and so we cannot solve for Re.
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