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Given a stock with a beta of 1.2, risk free rate of 4%, and a market return of 10%, calculate the required return.

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Answer: 11.2%

Explanation:

The required return of this stock can be calculated using the Capital Asset Pricing Model (CAPM) which is expressed as follows;

Required return = Risk free rate + beta ( Market return - risk free rate)

= 4% + 1.2 ( 10% - 4%)

= 11.2%

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