- CFA Exams
- CFA Level I Exam
- Topic 9. Portfolio Management
- Learning Module 63. Portfolio Risk and Return: Part II
- Subject 3. The Capital Asset Pricing Model

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**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%.

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**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 |