Question
The risk-free rate is currently 4.30%. In addition, you have the following information: Expected Return Company Beta Round Corp. 7.78% 0.44 Lemon LLC 13.39%
The risk-free rate is currently 4.30%. In addition, you have the following information: Expected Return Company Beta Round Corp. 7.78% 0.44 Lemon LLC 13.39% ? Beach Living Inc. ? 1.45 Tasman Devils Corp. 7.04% 0.79 Allied Metal Traders 18.23% 1.46 A) You know that Round Corp. is correctly priced because an army of analysts and thousands of institutional investors hold it. What does this tell you about the market return that investors seem to expect per year? % B) What beta for Lemon LLC would make investor expectations consistent with your findings in part A)? C) Given the expected market return in A), what is the correct expected return for Beach Living Inc.? %
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Fundamentals of Corporate Finance
Authors: Berk, DeMarzo, Harford
2nd edition
132148234, 978-0132148238
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