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Consider three companies, A, B, and C. Suppose that a common stock analyst estimates that the market risk premium is 5% and the risk-free rate is 4.63%.

The analyst estimated the beta for each company to be as follows: Company A, 0.9; Company B, 1.0, and; Company C, 1.2.

The analyst uses to CAPM to estimate the discount rate. The CAPM says that the expected return is equal to the risk-free rate plus the product of the market risk premium and the company's beta.

What is the estimated discount rate for each company?

Business Management, Management Studies

  • Category:- Business Management
  • Reference No.:- M92034344

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