March’s Study Question of the Month

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Congratulations to Dawn C., this month’s Study Question of the Month winner! 

See the answer below!

***Submit your answer to info@solomonexamprep.com to be entered to win a $10 Starbucks gift card.***

Question (Relevant to the Series 7, Series 65, Series 66)

studyQuestion

 

 

 

 

 

According to the Capital Asset Pricing Model, if the risk-free rate of return is 2%, the market rate of return is 6%, and the investment’s beta is 1.5, what is the required rate of return of an investment?

A. 6.5%
B. 7%
C. 8%
D. 18%

Answer: A. To calculate the required rate of return, according to the CAPM, subtract the risk-free rate from the market rate to get the market premium, then multiply the market premium by the beta and add that product to the risk-free rate to get the required rate of return of the investment.

As follows:

.06 – .02 = .04

.04 x 1.5 = .06
.06 + .02 = .08 or 8%

3 thoughts on “March’s Study Question of the Month”

  1. Been awhile but I got 8% for the risk-adjusted discount rate, or required ROR.

    So, C. 8%

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