Assume the risk free rate is 4 percent, the required rate of return on the market portfolio is 15 percent, and the reported beta for a medical device manufacturer is 1.7. Under the capital asset pricing model, the required rate of return on the stock of the medical device manufacturer is

a. 29.5 percent

b. 32.3 percent

c. 18.7 percent

d. 15.0 percent

e. 22.7 percent

required rate of return on the stock = 22.7%

so correct option is e. 22.7 percent

Explanation:

given data

risk free rate = 4 percent

rate of return = 15 percent

beta = 1.7

to find out

required rate of return on the stock

solution

we get here required rate of return on the stock that is express here as

required rate of return on the stock = risk free rate + beta * (Return on the Market portfolio - Risk free Rate) ... 1

put here value we get

required rate of return on the stock = 4 + 1.7 * (15 - 4)

required rate of return on the stock = 22.7%

so correct option is e. 22.7 percent