Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

What are the factors determining te required rate of return of the security? The answer on chegg.com is this one: But is would instead answer

What are the factors determining te required rate of return of the security?

The answer on chegg.com is this one:

image text in transcribed

But is would instead answer it this way:

The required rate of return is determined by the risk-free rate + risk premium

Or I would answer it this way (based on the CAPM) :

De required rate of return is determined by :

- The risk-free rate

- The Beta

- The market risk premium.

Which answer is correct? Are mine possible answers or not?

Thank you

The rate of return required for a security is based on the cost of capital investment). This includes what the company has to pay for any debt it acquires, issuing preferred and common stock, and retained earnings. The capital markets and the degree of risk of any of these investments, along with the company's existing assets and capital structure determine the cost of capital. The higher the cost of capital indicates the greater the risk to the investor, and the greater the required rate of return

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

More Books

Students also viewed these Finance questions

Question

=+1. What is the tone of the comments? How can they be improved?

Answered: 1 week ago

Question

Write formal and informal proposals.

Answered: 1 week ago

Question

Describe the components of a formal report.

Answered: 1 week ago

Question

Write formal and informal reports.

Answered: 1 week ago