Use the security market line to determine the required rate of return for the following firm's stock. The firm has a beta of 0.80, the required return in the market place is 12.50%, and the risk-free rate of return is 3.50%
A) 13.50%
B) 10.70%
C) 7.20%
D) 2.80%
Answer: B
Explanation: B) Re = Rf + β × (Rm - Rf) = 3.50% + 0.80 × (12.50% - 3.50%) = 10.70%.
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