Assume that the risk-free rate is 6% and that the expected return on the market is 13%. What is the required rate of return on a stock that has a beta of 0.7?

The ba350 week seven (ba/350) is also known as the ba350 week 7.

Capital Asset Pricing Model (CAPM) can be used to determine the rate of return required on an investment. This model takes into account the risk-free rate, the expected return on the market and an individual stock’s beta. The formula for CAPM is: Required Rate of Return = Risk Free Rate + Beta X (Market Expected Return – Risk Free Rate)

Assuming that in the scenario above, the risk free rate is 6 percent and that the anticipated return on the markets is 13 percent, then we can determine that a security with beta of 0.7 would have to return 9.1 per cent. For an investor to make money from this investment, the returns must be higher than 9.1%.

Ultimately, understanding how to calculate a stock’s required rate of return based on these factors is essential when making investment decisions as it helps investors determine which securities are likely to yield profits over time.