- 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
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 |