# The required rate of return on an asset is a function of the: A) risk associated with the asset...

## Question:

The required rate of return on an asset is a function of the:

A) risk associated with the asset

B) risk-free interest rate

C) age of the asset

D) risk associated with the asset and the risk-free interest rate

## Required Rate Of Return:

Required rate of return is the minimum expected return on the asset. Alternatively, the required rate of return on a specific asset can be defined as the opportunity cost that an investor undertakes by giving up other potential investments.

The answer is D) risk associated with the asset and the risk-free interest rate

CAPM formula:

Required rate of return = Risk-free rate + (Expected market return - Risk-free rate) x Beta

It is obvious that the required rate of return would consider both risk-free rate and its risk over the market. Note that, beta of the asset measures how its value fluctuates against the entire market.

Required Rate of Return (RRR): Formula & Calculation

from

Chapter 1 / Lesson 29
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Both investors and businesses have a required rate of return (RRR) for potential investments and projects. We will use examples and formulas to calculate an RRR for both.