Required Rate of Return AA Corporation's stock has a beta of 0.7. The risk-free rate is...

Required Rate of Return AA Corporation's stock has a beta of 0.7. The risk-free rate is 3%, and the expected return on the market is 12%. What is the required rate of return on AA's stock? Do not round intermediate calculations. Round your answer to one decimal place.

Expert Solution

Beta = 0.7

Risk free rate = 3%

Expected return on market = 12%

Required rate of return on AA's stock using CAPM = Risk free rate + Beta * Market risk premium

= 3% + 0.7*(12% - 3%) = 3% + 9% * 0.7 = 9.3%

jeff jeffy answered 2 years ago

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