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27 February, 11:20

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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  1. 27 February, 14:36
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    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%
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