Determine the required rate of return on the security, Finance Basics

Elephant Company common stock has a beta of 1.2. The risk-free rate is 6% and the expected market rate of return is 12%. Determine the required rate of return on the security.

 

Elephant Company

     

a

Risk Free rate (Rf)

   

6%

b

Beta of stock (β)

   

1.2

c

Expected market return (Re)

 

12%

d

As per CAPM,

     
           
 

Re

=

Rf + β x (Rm - Rf)

 
 

Re

=

6% + 1.2 x (12%- 6%)

 
 

Re

=

6% + 1.2 x 6%

 
 

Re

=

6% + 7.2%

 
 

Re

=

13.20%

   

 

 

Posted Date: 7/23/2012 2:12:42 AM | Location : United States







Related Discussions:- Determine the required rate of return on the security, Assignment Help, Ask Question on Determine the required rate of return on the security, Get Answer, Expert's Help, Determine the required rate of return on the security Discussions

Write discussion on Determine the required rate of return on the security
Your posts are moderated
Related Questions
1.  A company is trying to decide which one of two projects it should accept. Both projects have similar start-up costs. Project 1 will generate annual cash flows of $52,000 a year

Consider an economy with three dates {t=0, 1, 2}. A firm has assets in place that generate an output (profit) of either 40 in state L or 160 in state H at t=2. Bothe states equally

what type of assets does Intel own and the most significant asset to the company and why?

State the Realised and Expected Return Return is not as simple a notion as it appears to be as it's not guaranteed, it is mostly expected, and it may or may not be realized.

Gloria the Investor Gloria is a seasoned sales manager with a very large international company. Although she has a great deal of experience with sales, she has little experience w

Valuation of Securities The previous methods were perfect for valuing the entire business however it is also essential to ascertain the value of part of a business namely shar

Illustrate the Advantages of Underwriting Underwriting presumes great significance as it offers the below benefits to the issuing company: (i) Issuing company is relied f


A current radio advertisement states that the average American household has an average credit card debt of $25,000. Based on an APR (Annual Percentage Rate) of 18% (common for cre

Consider a binomial model of a risky asset with the parameters r = 0:06, u = 0:059, d = 0:0562, S 0 = 100, T = 1, 4t = 1=12. Note that u and d are monthly effective rates of retur