Answer:
Required return on stock = 13.44%
Explanation:
We know,
The required return on the company's stock = Risk-free rate of return + (Expected return on the market - Risk-free rate of return) x beta
= [tex]R_{f}[/tex] + ([tex]R_{m} - R_{f}[/tex]) x b
Given,
Beta, β = 1.14;
Risk-free return, [tex]R_{f}[/tex] = 3.33%
Return on the market, [tex]R_{m}[/tex] = 12.20%
Putting the numbers on the formula, we can get,
The required return on the company's stock = 3.33% + (12.20% - 3.33%) x 1.14
required return on stock = 3.33% + 10.1118%
required return on stock = 13.44% (Rounded to two decimal places)
