Radagast Inc. has one-million common shares outstanding, with each share priced at $12. The company’s equity...
Radagast Inc. has one-million common shares outstanding, with each share priced at $12. The company’s equity beta is 2. What is the expected return on the company’s shares if the risk-free rate is 3% and the market return is 12%?
Select one:
a. 5%
b. 8%
c. 13%
d. 21%
e. 31%
Homework Answers
Ans:- As per CAPM Model we know that
Expected Return = Risk-free rate + Beta * ( Market Return - Risk-free rate)
= 3% + 2 * ( 12% - 3%) = 21%.
Therefore, the expected return on the company's shares is 21%. option (d) is the right answer.
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