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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:
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
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