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vinsu, Professor
Category: Finance
Satisfied Customers: 522
Experience:  MBA in Finance and Marketing
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HOW DO YOU CALCULATE REQUIRED RETURN

Customer Question

I am in a grad pragram and this is the first finance class we are taking. The book we are using does not explain a formula that is needed to caluculate required return.
Submitted: 8 years ago.
Category: Finance
Expert:  RD replied 8 years ago.

Is this using CAPM (Capital Asset Pricing Model) than the required rate of return is

Risk free return + Beta *(Expected Market Return - Risk Free return)

 

Customer: replied 8 years ago.
well the question I have is to calculate stock A;s beta The information I am given is rRF=5%
rM=10% and rA=12%   There is no formula in this book that shows how to do this.
Expert:  vinsu replied 8 years ago.

Using the formula which is given by Renu

rA = rRF + (rM-rRF) X beta

12% = 5% + (10%-5%) X beta

beta = 7%/5%=1.40

vinsu, Professor
Category: Finance
Satisfied Customers: 522
Experience: MBA in Finance and Marketing
vinsu and other Finance Specialists are ready to help you
Expert:  RD replied 8 years ago.

Yes, Vineet is right.

You use the formula I provided to calculate the beta.