Question

Fiske Roofing Supplies' stock has a beta of 1.23, its required return is 10.00%, and the risk-free rate is 4.30%. What is the required rate of return on the market? (Hint: First find the market risk premium.)

Answer 1

Required return = Risk-free rate + Beta(Required rate of return on the market - Risk-free rate)

0.1000 = 0.0430 + 1.23(Required rate of return on the market - 0.0430)

0.1000 - 0.0430 = 1.23Required rate of return on the market - 0.05289

0.1000 - 0.0430 + 0.05289 = 1.23Required rate of return on the market

0.10989 = 1.23Required rate of return on the market

Required rate of return on the market = 0.10989 / 1.23

Required rate of return on the market = 0.0893 or 8.93%