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Calculate the expected rate of return of iuy company

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Problem 1: IUY Corp. is considering issuing shares to raise capital. If the company pays its creditors a return of 8% p.a., would the potential shareholders expect a return higher or lower than 8% p.a.? Explain your answer.

Problem 2: IUY has a beta of 1.5. The long-term return of the ASX200 (i.e. the market portfolio) is 8% p.a. and the market risk premium is 5% p.a. Using CAPM, calculate the expected rate of return of IUY company.

Reference no: EM132904134

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