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D.) The risk-free rate on long-term Treasury bonds and the market risk premium are shown below. What is the expected return on the market? Now
D.) The risk-free rate on long-term Treasury bonds and the market risk premium are shown below. What is the expected return on the market? Now use the SML equation to calculate the two companies' required returns. | ||||||
Market risk premium (RPM) = | 6.00% | |||||
Risk-free rate = | 5.00% | |||||
Expected return on market = | Risk-free rate | + | Market risk premium | |||
= | 5.00% | + | 6.00% | |||
= | 11.00% | |||||
Required return | = | |||||
Goodman: | ||||||
Required return | = | |||||
= | ||||||
Landry: | ||||||
Required return | = | |||||
= | ||||||
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