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11 December, 11:48

Suppose the common stock of United Industries has a beta of 1.28 and an expected return of 15.47 percent. The risk-free rate of return is 3.7 percent while the inflation rate is 4.2 percent. What is the expected market risk premium

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  1. 11 December, 14:52
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    The expected market risk premium is 9.20%

    Explanation:

    In order to calculate the expected market risk premium we would have to calculate the following formula:

    expected market risk premium = (Rs-Rf) / β

    Rf=3.7%

    β=1.28

    Rs=15.47%

    expected market risk premium = (15.47%-3.7%) / 1.28

    expected market risk premium=9.20%

    The expected market risk premium is 9.20%
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