Respuesta :
The required rate of return on the market is 9.98%.
What is Risk Premium?
- A risk premium is an additional risk required by a common stockholder in exchange for taking the additional risk of investing in that particular stock.
- It denotes the distinction between market risk-return and risk-free return.
To find the rate of return:
The required market rate of return is calculated as follows:
Required return = Risk-free rate + (Beta × (Market return - Risk-free rate))
- 11.75% = 2.3% + (1.23 × (Market return - 2.3%))
- 1.23 × (Market return - 2.3%) = 11.75% - 2.3%
- 1.23 × (Market return - 2.3%) = 9.45%
- Market return - 2.3% = 7.68%
- Market return = 7.68% + 2.3%
- Market return = 9.98%
Therefore, the required rate of return on the market is 9.98%.
Know more about Risk Premium here:
https://brainly.com/question/15075195
#SPJ4
The correct question is given below:
Mulherin's stock has a beta of 1.23, its required return is 11.75%, and its risk-free rate is 2.30%. What is the required rate of return on the market?
