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What is the expected return for each company

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Question - You have forecast an equity risk premium of 7%. The risk free rate is 5%. Calculate the expected return on the following three shares:

Company Beta

Sims Ltd 1.26

Simpsons Ltd 0.80

Knight-Day Ltd -0.64

Required -

a. What is the expected return for each company?

b. Which company has the highest level of risk? How can you tell?

c. Which company would you like to be holding when the market takes a downturn? Why?

Reference no: EM133168861

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