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Assume that the risk-free rate is 5.5% and the required return on the market is 12%. What is the required rate of return on a stock with a beta of 1.8

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Answer: 17.2%

Explanation:

You can use the Capital Asset Pricing Model to calculate the required return here given the variables in the question:

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

= 5.5% + 1.8 * ( 12% - 5.5%)

= 5.5% + 11.7%

= 17.2%

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