GARP Financial Risk and Regulation (FRR) Series 2016-FRR Question # 48 Topic 5 Discussion
2016-FRR Exam Topic 5 Question 48 Discussion:
Question #: 48
Topic #: 5
A risk associate is trying to determine the required risk-adjusted rate of return on a stock using the Capital Asset Pricing Model. Which of the following equations should she use to calculate the required return?
A.
Required return = risk-free return + beta x market risk
The Capital Asset Pricing Model (CAPM) equation used to calculate the required return on a stock is:Required return = risk-free return + beta × (market risk premium).
This formula helps determine the return an investor should expect for taking on additional risk compared to a risk-free asset.
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