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Risk-free rate 5%, market premium 8%, beta 1.2. Required equity return under CAPM is:
A14.6%
B13.6%
C9.6%
D15.6%
Answer & Solution
Correct answer: A. 14.6%
1. Ke = Rf + β × Market Risk Premium = 5% + 1.2 × 8%.
2. = 5% + 9.6%.
3. Result = 14.6%.
_Source: ICAI BoS CA Inter Paper 6A, Ch 4 "Cost of Capital", §7_
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