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3 April, 22:49

Suppose that the risk-free rate is 6.5% and that the market risk premium is 5%. What is the required rate of return on a stock with a beta of 1.1? Round your answer to two decimal places.

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  1. 3 April, 23:17
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    The required return on the stock is 12%

    Explanation:

    According to the CAPM model the required return on a stock is the risk free rate + the beta multiplied by the market risk premium.

    The formula is Required return = Risk free rate + (Beta*market risk premium)

    Now we input the numbers in the formula

    Required return = 0.065 + (1.1*0.05) = 0.12 = 12%
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