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Problem:

The common stock for a particular company is known to have a beta (?) of 1.20. The expected return on the market (rM) is 9 percent and the risk-free rate (rRF) is 5 percent.

Requirement:

Question 1: Compute a fair rate of return based on this information.

Question 2: What would be a fair rate of return if the beta were 0.85?

Question 3: What would be a fair rate of return if the expected return on the market increased to 12 percent and the beta remained at 0.85?

Note: Provide support for your underlying principle.

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Accounting Basics, Accounting

Category:- Accounting Basics
Reference No.:- M91168568

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