PQR Corporation has a Beta of 1.5. The risk-free rate is 6%, and the market risk premium is 11%. What is the required rate of return of PQR?

To calculate the required rate of return for PQR Corporation, we use the **Capital Asset Pricing Model (CAPM)** formula:

\[
\text{Required Rate of Return (RRR)} = R_f + \beta \times (R_m - R_f)
\]

Where:
- \( R_f \) = Risk-free rate = 6% or 0.06
- \( \beta \) = Beta of the stock = 1.5
- \( R_m - R_f \) = Market risk premium = 11% or 0.11

Now, substituting the given values:

\[
\text{RRR} = 0.06 + 1.5 \times 0.11
\]

\[
\text{RRR} = 0.06 + 0.165 = 0.225
\]

\[
\text{RRR} = 22.5\%
\]

Therefore, the required rate of return for PQR Corporation is **22.5%**.

Would you like a breakdown of each step, or any other clarification?

Here are some related questions for deeper understanding:
1. What does Beta represent in finance, and why does PQR's Beta of 1.5 indicate higher risk?
2. How does the market risk premium affect the required rate of return?
3. What is the significance of the risk-free rate in the CAPM formula?
4. How would the required rate of return change if PQR's Beta were lower?
5. Can the CAPM model be applied to other financial assets besides stocks?

**Tip**: A higher Beta indicates greater sensitivity to market movements, implying more risk and a higher required rate of return.

Learn how to calculate the required rate of return for PQR Corporation using the Capital Asset Pricing Model (CAPM). This example involves key finance concepts such as Beta, the risk-free rate, and the market risk premium, making it ideal for university-level finance students.

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