The Historical Returns for the Past Three Years for Stock

Multiple Choice

The historical returns for the past three years for Stock B and the stock market portfolio are Stock B: 24 percent, 0 percent, 24 percent; market portfolio: 10 percent, 12 percent, 20 percent. The expected market return is 12 percent. Calculate the required rate of return (cost of equity) for Stock B using the CAPM. (The risk-free rate of return = 4%.)

A) 8.6 percent
B) 12.6 percent
C) 10.9 percent
D) 16.0 percent