Question

 Netflix common stock has a​ beta, b​, of 0.7. The​ risk-free rate is 6 %​, and the market return is 13​%.

a.  Determine the risk premium on Netflix common stock.

b.  Determine the required return that Netflix common stock should provide.

c.  Determine​ Netflix's cost of common stock equity using the CAPM

Answer 1

c) Cost of common equity (1) Rf+BxRp Here, Risk free rate of return (Rf) Beta of the stock (B) Market risk premium (Rp) 6% 0.7 7% Cost of common equity (r) | 10.90% 6%+0.7x7% a) Risk premium 4.90% = 10.9%-6%

b) Required return Rf+BxRp Here, 6% Risk free rate of return (RF) Beta of the stock (B) Market risk premium (Rp) 0.7 7% -13%-6% Required return 10.90% 6%+0.7x7%

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