Question

Pasteur Inc. (PI) common stock has a beta of 1.2. If the expected return on the average stock is 12 percent and the risk-free rate is 6 percent, what is the required rate of return for PI

Answer 1

Answer:

13.2%

Explanation:

required return Ra=?

market return Rm=12%

Beta of stock Ba=1.2

Risk free return Rf=6%

Formula;

Ra=Rf+(Rm-Rf)*Ba

Ra=.06+(.12-.06)*1.2

Ra=13.2%