Mulherin's stock has a beta of 1.2, its required return is 10%, and the risk-free rate is 4%. What is the required rate of return on the market? (Answer: %, Hint: First, find the market risk premium.)

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Karter

Business

29 December, 17:50

Mulherin's stock has a beta of 1.2, its required return is 10%, and the risk-free rate is 4%. What is the required rate of return on the market? (Answer: %, Hint: First, find the market risk premium.)

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Sidney Chen · Answer 1

9%

Explanation:

The formula is Ra=Rf + (Rm-Rf) Ba

Ra=10%

Ba=1.2

Rf=4%

Rm=?

Ra=Rf + (Rm-Rf) * Ba

10%=4% + (Rm-4%) * 1.2

10%=4%+1.2Rm-4.8%

10%+4.8%=4%+1.2Rm

14.8%-4%=1.2Rm

Rm = 10.8%/1.2

Rm=9%