Question

Mulherin's stock has a beta of 1.44, its required return is 9.90%, and the risk-free rate is 2.35%. What is the required rate of return on the market?

Answer 1

As per CAPM,

Required Return = Risk Free Rate + ( Required Rate of Return on Market - Risk Free Rate ) * Beta

9.90 % = 2.35% + ( Required Rate of Return on Market - 2.35% ) * 1.44

or 9.90 % - 2.35% = 1.44 * Required Rate of Return on Market - 3.384%

or 7.55% + 3.384 % = 1.44 * Required Rate of Return on Market

or  Required Rate of Return on Market = 7.593055556%

Hence the correct answer is 7.59%

Note :

The answer is rounded off to two decimal places.