required rate of return = 0.166 = 16.6%
step-by-step explanation:
under the capital asset pricing model (capm), the required or expected rate of return for a particular security or asset is given using the formula:
required rate of return = risk-free rate + beta*(market risk premium)
we are given that;
risk-free rate = 4% = 0.04
beta = 1.4
market risk premium = 9% = 0.09
we simply plug these values into the above formula;
required rate of return = 0.04 + 1.4*(0.09)
required rate of return = 0.04 + 0.126
required rate of return = 0.166 = 16.6%