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
Limitations of Credit Cards - Source of Finance Limitations of Credit Cards as a Source of Finance are as follow: i) These cards lead to overspending on the part of the hol

Baumol's Model - Optimal Cash Balance An application of the EOQ is the Baumol's model which is inventory model to cash management. Its statements are as: The firm emplo

what is the ambiguity

Require  the relevant authoritative literature on the lower- of- cost- or- market rule for valuing inventory using the FASB's Codification Research System. Clarify the circumstance

As the Chief Financial Officer for the wholly Australian owned, Australian Stock Exchange listed company, Toy Show Ltd., an importer and manufacturer of a range of quality children

Earnings Method or Earning Basis Valuation By using the earning valuation method, a company will employ its P/E ratio to value its shares. P/E    =  MV/E MV    =   E x P


In the present case, we need to take a decision about implementing one of the available two options, based on various factors. The available two options are either to complete a se

Central Depository System or C.D.S Its computerized ledger systems which enable the transfer or holding of securities with no necessitate for physical movement.  The shares or

Which of the following is not considered to be an investment objective