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Part 1

Cost of common stock

equityCAPM

Netflix common stock has a beta,

b,

of

1.1.

The risk-free rate is

6%,

and the expected market return is

12%.

a.Determine the risk premium on Netflix common stock.

b.Determine the required return that Netflix common stock should provide.

c.Determine Netflix's cost of common stock equity using the

CAPM.