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27 April, 04:49

Assume the risk free rate is 4 percent, the required rate of return on the market portfolio is 15 percent, and the reported beta for a medical device manufacturer is 1.7. Under the capital asset pricing model, the required rate of return on the stock of the medical device manufacturer is

a. 29.5 percent

b. 32.3 percent

c. 18.7 percent

d. 15.0 percent

e. 22.7 percent

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  1. 27 April, 04:55
    0
    required rate of return on the stock = 22.7%

    so correct option is e. 22.7 percent

    Explanation:

    given data

    risk free rate = 4 percent

    rate of return = 15 percent

    beta = 1.7

    to find out

    required rate of return on the stock

    solution

    we get here required rate of return on the stock that is express here as

    required rate of return on the stock = risk free rate + beta * (Return on the Market portfolio - Risk free Rate) ... 1

    put here value we get

    required rate of return on the stock = 4 + 1.7 * (15 - 4)

    required rate of return on the stock = 22.7%

    so correct option is e. 22.7 percent
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