Zacher Co.'s stock has a beta of 1.40, the risk-free rate is 4.25%, and the market risk premium is 5.50%. What is the firm's required rate of returna. 11.36%

b. 11.65%

c. 11.95%

d. 12.25%

e. 12.55%

c. 11.95%

Explanation:

For this question, we use the Capital Asset Pricing Model (CAPM) formula which is presented below:

The Required rate of return = Risk-free rate of return + Beta * (Market rate of return - Risk-free rate of return)

where,

The Market rate of return - Risk-free rate of return) is also called as the market risk premium.

= 4.25% + 1.40 * 5.50%

= 4.25% + 7.7%

= 11.95%