General level of compensation for bearing systematic risk

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Reference no: EM132016041

1. The market risk premium for next period is 8.20% and the risk-free rate is 2.50%. Stock Z has a beta of 1.061 and an expected return of 9.80%. What is the: "

a) Market's reward-to-risk ratio?

b) Stock Z's reward-to-risk ratio

2. If the expected rate of return for the market is not much greater than the risk-free rate of return, what does this suggest about the general level of compensation for bearing systematic risk?

3. The common stock, which can be bought at $41.50, has experienced a 7% annual growth rate in dividends and has just paid a $1.25 dividend. What is the cost of the common stock when the flotation cost is 7%?

Reference no: EM132016041

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