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What is the implied equity risk premium

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Reference no: EM132924445

Question - Saerta's beta is 1.2, and its cost of equity is 9%. Assume that the risk-free rate (RF) is 3%.

(a) What is the implied equity risk premium based on the information above.

(b) Suppose you want to earn a return of 15% on your investment in Saerta. Explain how you can achieve this using shares of Saerta in combination with the risk-free asset.

(c) Your friend is more risk averse, and wants to keep the beta of his investment down to 0.8. Explain how she can achieve this using shares of Saerta in combination with the risk-free asset.

Reference no: EM132924445

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