Question

The capital asset pricing model suggests that the required return on a firm's stock is a...

The capital asset pricing model suggests that the required return on a firm's stock is a positive function of:

unsystematic risk

the market rate of return

the competitor fs cost of equity

All of these are correct.
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Homework Answers

Answer #1

The formula to calculate required return using CAPM is -

Required return = risk free rate + beta (market premium)

Hence, the required return is positively realted to the risk free rate and the market premium. Unsystematic risk is not considered in CAPM. Nor do we use the competitors cost of equity. Hence, the correct answer is-

The market rate of return.

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