You Have Been Given an Opportunity to Invest in a Stock

Essay

You have been given an opportunity to invest in a stock. Recent trends suggest that a one percent rise in the stock market leads to approximately a two and one-half percent rise in the price of this stock. The real risk-free rate currently stands at 6% and stocks on average have provided 12% returns. Using the capital asset pricing model, determine the appropriate discount rate for the stock in question.