Adam wants to determine the required return on a stock portfolio with a beta coefficient of 0.5. Assuming the risk-free rate of 6 percent and the market return of 12 percent, compute the required rate of return
What will be an ideal response?
r = RF + b(rm - RF)
= 0.06 + 0.5(0.12 - 0.06 ) = 0.09 = 9%
The company should expect at least 9 percent return on the stock portfolio.
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