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In the last mini case, Lawrence's Legacy Part 2, Amazon had a beta of 3.02. That's...

In the last mini case, Lawrence's Legacy Part 2, Amazon had a beta of 3.02. That's pretty high for a beta. If the risk-free rate is 3.8% and the broad market return is 8.7%, what is an estimate of this company's stock's required return?

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Answer #1

Stock's required rate of return = Risk free rate + beta(market return - risk free rate)

Stock's required rate of return = 3.8% + 3.02(8.7% - 3.8%)

Stock's required rate of return = 3.8% + 14.798%

Stock's required rate of return = 18.60%

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