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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: 10 years ago.Category: Finance
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10/3/2007
Financial Professional: RD, Certified Public Accountant (CPA) replied 10 years ago
RD, Certified Public Accountant (CPA)
Category: Finance
Satisfied Customers: 8,784
Experience: MBA, CPA
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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 reply replied 10 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.
Financial Professional: vinsu, Professor replied 10 years ago
vinsu, Professor
Category: Finance
Satisfied Customers: 522
Experience: MBA in Finance and Marketing
Verified

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
Verified
Financial Professional: RD, Certified Public Accountant (CPA) replied 10 years ago

Yes, Vineet is right.

You use the formula I provided to calculate the beta.

vinsu, Professor
Category: Finance
Satisfied Customers: 522
522 Satisfied Customers
Experience: MBA in Finance and Marketing

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