Assume the risk free rate is 4% and the beta for a particular firm is 2, current firm share price is $35 and the market risk premium is 8% Given the risk level what is the one year required rate of return (we will call this k)?

Assume the risk free rate is 4% and the beta for a particular firm is 2, current firm share price is $35 and the market risk premium is 8% Given the risk level what is the one year required rate of return (we will call this k)?

EBK CFIN

6th Edition

ISBN:9781337671743

Author:BESLEY

Publisher:BESLEY

Chapter8: Risk And Rates Of Return

Section: Chapter Questions

Problem 14PROB

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Question

Assume the risk free rate is 4% and the beta for a particular firm is 2, current firm share price is $35 and the market risk premium is 8%

Given the risk level what is the one year required rate of return (we will call this k)?

Definition Definition Percentage gain or loss from a specific investment over time. The rate of return is the difference between the closing and initial values of an investment divided by the initial value of the investment. The closing value includes any intermediate cash flows such as dividends or interest amounts.

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