1-Problem 10-7 CAPM Required Return (LG10-3) Hastings Entertainment has a beta o
ID: 2781607 • Letter: 1
Question
1-Problem 10-7 CAPM Required Return (LG10-3)
Hastings Entertainment has a beta of 0.51. If the market return is expected to be 16.10 percent and the risk-free rate is 6.10 percent, what is Hastings’ required return? (Round your answer to 2 decimal places.)
hastings' required return = .........%
2-Problem 10-8 CAPM Required Return (LG10-3)
Nanometrics, Inc. has a beta of 1.97. If the market return is expected to be 13.75 percent and the risk-free rate is 7.00 percent, what is Nanometrics’ required return? (Round your answer to 2 decimal places.)
nanometrics' required return=....... %
Explanation / Answer
1. Hastings' required return
As per CAPM
Required return = Rf + (Rm-Rf) * beta
Where
Rf = 6.10%
Rm= 16.10%
beta = 0.51
Therefore required return = 6.10 + (16.10 - 6.10) * 0.51
= 6.10 + (10*.51)
= 6.10+ 5.10
= 11.20%
Hastings ' required return = 11.20%
2.Nanomatrics' required return
As per CAPM
Required return = Rf + (Rm-Rf) *beta
Where, Rf = 7%
Rm= 13.75%
beta = 1.97
Required return = 7 + (13.75 - 7) * 1.97
= 7 + (6.75 * 1.97)
= 7 + 13.30
= 20.30%
Nanomatrics' required return = 20.30%
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