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24 July, 13:30

Zacher Co.'s stock has a beta of 1.40, the risk-free rate is 4.25%, and the market risk premium is 5.50%. What is the firm's required rate of return? Select one: a. 11.36% b. 11.65% c. 11.95% d. 12.25% e. 12.55%

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  1. 24 July, 13:55
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    option (c) 11.95%

    Explanation:

    Data provided in the question:

    Beta = 1.40

    Risk-free rate, Rf = 4.25%

    Market risk premium, Rm = 5.50%

    Now,

    Required rate of return = Rf + (beta * Rm)

    on substituting the respective values, we get

    Required rate of return = 4.25% + (1.40 * 5.50%)

    = 4.25% + 7.7%

    = 11.95%

    Hence,

    the correct answer is option (c) 11.95%
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