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Calculate the required rate of return for Mars Inc.'s stock. The Mar's beta is 1.2, the rate on a T-Bill is 4 percent , the rate on a long term T-bond is 6 percent, the expected return on the market is 11.5 percent, the market has averaged a 14 percent annual return over the last six years and Mars has averaged a 14.4 return over the last six years.
Required return = risk free rate + (market return - risk free rate) X beta
risk free rate = T-bond = 6%
market return = expected market return =11.5%
beta - 1.2
Required rate of return =6% + (11.5%-6%)X1.2 = 12.6%