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A company’s stock had a required return of 11.50% last year, when the risk-free rate was 5.50% and the market risk premium was 4.75%. Now, suppose there is a shift in investor risk aversion, and the market risk premium increases by 2.00%. The risk-free rate and the beta remain unchanged. What is this company’s new required return (round your answer to two decimal places)? You are required to show the following three steps for each problem (sample problems and solutions are provided for guidance): (i) Describe and interpret the assumptions related to the problem. (ii) Apply the appropriate mathematical model to solve the problem. (iii) Calculate the correct solution to the problem.

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M92881369

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