Question

Pepcico Inc. has a beta of 0.59. The risk-free rate is 2% and the market risk premium is 6%. What is the required rate of return of Pepcico? Round to the nearset hundredth percent. Answer in the percent format. Do not include % sign in your answer (i.e. If your answer is 4.33%, type 4.33 without a % sign at the end.)

Answer 1

Answer:

5.54%

Explanation:

Given that,

Pepcico Inc. has a:

Beta = 0.59

Risk-free rate = 2%

Market risk premium = 6%

As per the CAPM, the required rate of return of Pepcico is calculated as follows:

= Risk-free rate + (Beta × Market risk premium)

= 2 percent + (0.59 × 6 percent)

= 0.02 + 0.0354

= 0.0554 or 5.54%

Therefore, the required rate of return is 5.54%.