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Cost of common stock equity-CAPM Netflix common stock has a beta, b, of 1.7. The risk-free rate is 4%, and the market return
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Answer #1

A) Risk premium is calculated by Subtracting Risk free rate from Market Return

Risk Premium = Market Return - Risk free rate

=9%-4%

=5%

B) Required rate of Rurn = Risk free rate +Beta( Market return - Risk free rate )

= 4 % + 1.7(9-4)

= 4 + 8.5

=12.5 %

C) Cost of Common stock (CAPM)= Risk free rate + beta *Risk premium

= 4+1.7*5

=12.5 %

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