The beta of an MNC acquisition target is 1.38 and last year's S&P 500 return was at 14.92%, while for dedicated savers, T-Bills languished at a very dismal 2.21%. With this information, what is the Required Rate of Return for the MNC if they were to acquire this direct foreign investment? ke = Rf+B (Rm-Rf) Where ke = required return on stock Rf = risk-free rate of return Rm = market return B = beta of stock

Question

Marquise Rubio

Business

3 October, 19:57

The beta of an MNC acquisition target is 1.38 and last year's S&P 500 return was at 14.92%, while for dedicated savers, T-Bills languished at a very dismal 2.21%. With this information, what is the Required Rate of Return for the MNC if they were to acquire this direct foreign investment? ke = Rf+B (Rm-Rf) Where ke = required return on stock Rf = risk-free rate of return Rm = market return B = beta of stock

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Answers (1)

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Jayla Irwin · Answer 1

The Required Rate of Return for the MNC is 19,8%

Explanation:

Consider the following formula to calculate the required rate of return.

Required rate of return as per CAPM = Risk free rate + beta * (market return - risk free rate

= 2.21% + 1.38 (14.92%-2.21%)

= 19.7498%