Answer:
r = 0.16 or 16%
Explanation:
Using the CAPM, we can calculate the required rate of return on a stock. This is the minimum return required by the investors to invest in a stock based on its systematic risk, the market's risk premium and the risk free rate.
The formula for required rate of return under CAPM is,
r = rRF + Beta * (rM - rRF)
Where,
rRF is the risk free rate
rM is the return on market
r = 0.07 + 1.5 * (0.13 - 0.07)
r = 0.16 or 16%
