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Elephant Company common stock has a beta of 1.2. The risk-free rate is 6% and the expected market rate of return is 12%. Determine the required rate of return on the security.

	Elephant Company
a	Risk Free rate (Rf)			6%
b	Beta of stock (β)			1.2
c	Expected market return (Re)			12%
d	As per CAPM,

	Re	=	Rf + β x (Rm - Rf)
	Re	=	6% + 1.2 x (12%- 6%)
	Re	=	6% + 1.2 x 6%
	Re	=	6% + 7.2%
	Re	=	13.20%

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