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Part 1: ABC Inc.'s stock has a 25% chance of producing a 10% return, a 50% chance of producing a 15% return, and a 25%
Part 1: ABC Inc.'s stock has a 25% chance of producing a 10% return, a 50% chance of producing a 15% return, and a 25% chance of producing a -2% return. What is the firm's expected rate of return. Part 2: Calculate the required rate of return for ABC Inc., assuming that (1) investors expect a 3.0% rate of inflation in the future, (2) the nominal risk-free rate is 5.0%, (3) expected market return is 11% and (4) the firm has a beta of 1.50 Hint: You need to find out market risk premium first.
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