Question: Assume that you are considering investing in Xerox common stock. You have found that its beta is +1.2 and you think a market risk premium should be 10%. If you could earn 5% on riskfree Treasury securities, Xerox has a required return of __%??? Thanks No its not 3 It has to be either 17 14.4 21.6 22.4 Please give me the formula to calculate! Thanks Ok, 17 is the correct answer. But how did I get it?? Is there an online calc??
Answer: The market risk premium is (Rm - Rf). So the formula is R Xerox = Rf + Beta Xerox * (Rm - Rf) R Xerox = 5% + 1.2*(10%) = 17%
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