Question

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Linke Motors has a beta of 1.30, the rate on U.S. Treasury securities is 6.5%. The...

Linke Motors has a beta of 1.30, the rate on U.S. Treasury securities is 6.5%. The annual return on the stock market during the past 3 years was 15.00%, but investors expect the annual future stock market return to be 10.75%. Based on the SML, what is the firm's required return? Do not round your intermediate calculations.

Group of answer choices

12.03%

14.79%

14.43%

9.86%

14.31%

Solutions

Expert Solution

R = Rf+ B(Rm-Rf)
Where,
Rf = Risk Free Return
B= Beta
Rm = Market rate of return
Rm-Rf= Risk Premium
=0.065+1.3*(0.1075-0.065)
=0.065+1.3*(0.0425)
=12.03 %

jeff jeffy answered 2 years ago
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