Homework Answers
Required Return = Risk Free Rate of Return + Beta (Market Return
- Risk Free Rate of Return)
= 5.25% + (0.88 * (12.50% - 5.25%)
= 5.25% + (0.88 * 7.25%)
= 5.25% + 6.38%
= 11.63%
Firm's required rate of return = 11.63%
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