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30 July, 15:32

The risk-free rate of interest is 4% and the market risk premium is 7%. Hughes Corporation has a beta of 1.3, and last year generated a return of 11% with a standard deviation of returns of 15%. The required return on Hughes Corporation stock is:

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  1. 30 July, 15:38
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    13.10%

    Explanation:

    Required return = Risk-free rate + (Beta * Market risk premium) ... (1)

    Where;

    Required return = ?

    Risk-free rate = 4%, or 0.04

    Beta = 1.3

    Market risk premium = 7%, or 0.07

    Substitute the values into equation (1), we have:

    Required return = 0.04 + (1.3 * 0.07) = 0.1310, or 13.10%

    Therefore, the required return on Hughes Corporation stock is 13.10%.
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