This problem involves calculating the required return on a company's stock using the Capital Asset Pricing Model (CAPM) formula:

$\text{Required Return (R)} = R_f + \beta (R_m - R_f)$

Where:

• $R_f$ = Risk-free rate = 1.41% (0.0141)
• $\beta$ = Beta of the stock = 2.8
• $R_m$ = Expected market return = 7.05% (0.0705)

Step 1: Calculate the Market Risk Premium

$R_m - R_f = 0.0705 - 0.0141 = 0.0564 \, (5.64\%)$

Step 2: Apply the CAPM Formula

$R = 0.0141 + 2.8 \times 0.0564$

Step 3: Multiply and Add

$R = 0.0141 + 0.15792 = 0.17202 \, (17.202\%)$

Final Answer:

The required return for the company's stock is 17.20 (without the % symbol, as requested).

Would you like me to explain any specific step in more detail?

Related Questions:

1. What does beta signify in the CAPM model, and why does a high beta imply higher risk?
2. How does the risk-free rate affect the required return on a stock?
3. What factors might cause the expected market return to change over time?
4. How would the required return change if the beta were lower or higher?
5. Why is CAPM widely used in finance, and what are its limitations?

Tip:

Always ensure the risk-free rate, beta, and market return are consistent in terms of time period (e.g., annualized) when using CAPM for calculations.