Beta = 1.2
T-bills rate (Risk free rate)= 3%
required Return= 15.00%
required Return = Risk free rate + (Beta*(Market return - risk free
rate of return)
15% = 3% + (1.2*MRP)
12%= 1.2*MRP
MRP= 12%/1.2= 10.00%
So Market risk Premium is 10%
if Market risk Premium increases to 12%. Beta and risk free rate
will not change, but required Return will change
New required Return= 3% + (1.2*12%)
17.40%
So Required Return will increase to 17.40% from 15%
(Please thumbs up or post comments if any query)
please show all work 5. SML A stock is appropriately priced at $40 per share. At...
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