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The market risk premium is 5.0 percent, and the risk-free rate is 3.5 percent. If the...

The market risk premium is 5.0 percent, and the risk-free rate is 3.5 percent. If the expected return on a bond is 5.5 percent, what is its beta? (Round answer to 2 decimal places, e.g. 15.25.)

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Answer #1

Given that,

market risk premium MRP = 5.0%

risk-free rate Rf = 3.5%

expected return on a bond E(r) = 5.5%

So, using CAPM model

E(r) = Rf + Beta*MRP

So, Beta = (5.5 - 3.5)/5 = 0.4

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