CFA Practice Question

There are 294 practice questions for this study session.

CFA Practice Question

The expected return on the market for the next period is 16%. The risk-free rate of return is 6%, and Zebra Company has a beta that is 20% greater than that for the overall market. The required rate of return for this company is closest to ______.
A. 14%
B. 16%
C. 18%
Explanation: The company's beta is 1.2. The required rate of return is then 6% + 1.2 (16% - 6%) = 18%.

User Contributed Comments 3

User Comment
sarasyed5 how is the beta 1.2? please explain
cd1234 Why 1.2? Zebra Company has a beta that is 20% greater than that for the overall market.
cdohe174 Beta of the market is always considered to be 1. Therefore if the companies Beta is 20% higher it is calculated as 1*(1+0.2) = 1.2
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