Q: Calculate the required rate of return for Mars Inc.\'s stock . The Mars\'s be

Question

Q: Calculate the required rate of return for Mars Inc.'s stock. The Mars's beta is 1.2, the rate on a T-bill is 4 percent, the rate on a long-term T-bond is 6 percent, the expected return on the market is 11.5 percent, the market has averaged a 14 percent annual return over the last six years, and Mars has averaged a 14.4 return over the last six years.

a) 12.6   b) 13.2   c) 14.0%   d) 15.6%   e) 16.2%

I really need the answer to show the equations and steps used so that I can learn from it. Thanks

Explanation / Answer

a) 12.6%

r = RFR + Beta*(Mr-RFR) = 0.06 + 1.2*(0.115-0.06) = 0.13 = 12.6%

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