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13 December, 11:12

A stock has an expected return of 16 percent, the risk-free rate is 6.4 percent, and the market risk premium is 7.3 percent. Required:What must the beta of this stock be? (Do not round intermediate calculations. Round your answer to 3 decimal places (e. g., 32.161).) Beta

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  1. 13 December, 11:21
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    The beta of the stock must be = 1.315 (approx).

    Explanation:

    Considering the following formula, we get:

    expected return = 16

    Risk free rate = 6.4

    Market risk premium = 7.3

    expected return=risk-free rate+beta * market risk premium

    hence

    16 = 6.4 + beta * 7.3

    hence beta = (16 - 6.4) / 7.3 = 1.315 (approx).
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