Raz Rae Sdn
Subject:FinancePrice:2.86 Bought11
Raz Rae Sdn. Bhd. is considering several investments. The rate on Treasur bills is currently 5 percent and the expected return for the market is 17 percent Using CAPM, estimate the appropriate required rate of return for the following three stocks BETA 0.75 STOCK A B ? 1.40
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Expected return = risk free rate + beta * market risk premium
=>
required rate of return of A
= 0.05 + 0.75 * (0.17-0.05)
= 14%
required rate of return of B
= 0.05 + 0.9 * (0.17-0.05)
= 15.8%
required rate of return of C
= 0.05 + 1.4 * (0.17-0.05)
= 21.8%
