Find the Required Rate of Return for Equity Investors of a Firm

question 53

Multiple Choice

Find the required rate of return for equity investors of a firm with a beta of 1.3 when the risk free rate is 5%,the market risk premium is 5%,and the return on the market is 10%.

• A) 11.5%
• B) 13.0%
• C) 16.5%
• D) 18.0%

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Definitions:

Equilibrium

A state in a market where demand equals supply, and the market clears at a certain price and quantity, leading to no incentive for change.

Market Fluctuation

Variations in market prices and volumes over time, influenced by various factors such as economic indicators, investor sentiment, and world events.

Gains from Trade

The benefits that individuals, companies, or nations achieve by specializing in what they can produce best and trading with others for the remainder of their needs.

Individuals, States, Countries

Entities at different levels of societal organization, ranging from single human beings to sovereign regions and entire nations with their own governance.