Hoogle has the beta of 1.95 which you calculated by running a regression. The annual T-bill rate is currently at 2.5%. Your projection of the market risk premium is 7.0%. Hoogle just paid a dividend of $1.50. What is the required rate of return for this equity? Round to the nearset hundredth percent. Answer in the percent format. Do not include % sign in your answer (i. e. If your answer is 4.33%, type 4.33 without a % sign at the end.)

Question

Darnell Crane

Business

2 April, 16:12

Hoogle has the beta of 1.95 which you calculated by running a regression. The annual T-bill rate is currently at 2.5%. Your projection of the market risk premium is 7.0%. Hoogle just paid a dividend of $1.50. What is the required rate of return for this equity? Round to the nearset hundredth percent. Answer in the percent format. Do not include % sign in your answer (i. e. If your answer is 4.33%, type 4.33 without a % sign at the end.)

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Jenny · Answer 1

The required rate of return on this equity is 16.15 percent

Explanation:

Using the capital asset pricing model (CAPM) the required rate of return on an asset can be calculated. The equation for the required rate of return under this model is,

r = rRF + β * (rpM)

Where,

rRF is the riskfree or tbill rate β is the stock's beta rpM is the market risk premium

Thus for Hoogle, the required rate of return is:

r = 2.5% + 1.95 * 7% = 16.15