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AA Corporation’s stock has a beta of 1.9. The risk-free rate is 4.5% and the expected...

AA Corporation’s stock has a beta of 1.9. The risk-free rate is 4.5% and the expected return on the market is 12%. What is the required rate of return on AA's stock? Round your answer to two decimal places.

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Answer #1

As per CAPM, the required return is:

Ke = riskfree rate + beta(expected market return - riskfree rate)

ke = 4.5% + 1.9(12%-4.5%)

ke = 18.75%

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