Answer:
9%
Explanation:
This question tests your understanding of the application of the CAPM (Capital Asset Pricing Model) formula.
The risk-free rate is the rate of return which an investment with no risk is expected to give. This is usually associated with investments in government securities (bonds) as governments are not expected to default.
The required return on market is the minimum return an individual expects to get from investing in a company
Beta co-efficient is the measure of volatility in relation to the market
The CAPM formula for calculating required rate of return is;
Ke = Rf + B(Rm - Rf)
where Rf = 3%
Rm = 8%
B = 1.2
Ke = 3% + 1.2*(8-3)
= 3% + 1.2*(5)
= 3% +6%
= 9%
I hope this helps you understand the question better and you can solve similar questions
