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Calculate the expected return for ABC Inc

Finance

Calculate the expected return for ABC Inc. which has a beta of 2.3 when the risk-free rate is 3% and you expect the current equity risk premium to be 7.2%. (1 Mark)

a.   10.2%
b.   12.7%
c.   15.4%
d.   19.6%

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Expected return = risk free rate + (beta × market risk premium)

Expected return = 3% + ( 2.3 × 7.2%)

Expected return = 3% + 16.56%

Expected return = 19.56%

Expected return = 19.6%

The correct answer is option d i.e. 19.6%