Evaluate the required rate of return

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Reference no: EM1328076

Find the required rate of return

2. If RF = 6 percent, b= 1.3, and the ERP = 6.5 percent, compute Ke (the required rate of return).

Ke = RF + b(KM - RF)

where

Ke = Required rate of return
RF = Risk-free rate
b = Beta coefficient
KM = Expected return for common stocks in the market
KM = Expected return for common stocks in the market
(KM - RF) = Equity risk premium (ERP)

Reference no: EM1328076

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