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Pavlova-9 [17]
3 years ago
12

In February 2017 the risk-free rate was 4.97 percent, the market risk premium was 7 percent, and the beta for Twitter stock was

1.40. What is the expected return that was consistent with the systematic risk associated with the returns on Twitter stock?
Business
1 answer:
Gnesinka [82]3 years ago
5 0

Answer:

14.77%

Explanation:

In this question, we apply the Capital Asset Pricing Model (CAPM) formula which is shown below

Expected rate of return = Risk-free rate of return + Beta × (Market rate of return - Risk-free rate of return)

= 4.97% + 1.40 × 7%

= 4.97% + 9.8%

= 14.77%

The (Market rate of return - Risk-free rate of return)  is also called market risk premium and the same is shown in the answer

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