If a company has a beta of 3.25. if the market return is expected to be 14 percent and the risk-free rate is 5.5 percent, the company's required return is 33.13%.
How to find the Required rate of return?
Using this formula to find the Required rate of return
Required rate of return = Risk-free rate + (Market return - Risk-free rate) x beta
Where:
Risk-free rate = 5.5%
Market return = 14%
beta = 3.25
Let plug in the formula
Required rate of return = 5.5% + (14% - 5.5%) x 3.25
Required rate of return = 5.5% + 8.5% x 3.25
Required rate of return = 5.5% + 27.625%
Required rate of return = 33.125%
Required rate of return = 33.13% (Approximately)
Therefore the Required rate of return is 33.13%.
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