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Security market line equation and concepts

Use the Security Market Line Equation and concepts to respond to the following questions:

The Risk Free Rate of Return in 3%

The Return on Average Stock is 8%

Assume that the Abbott Company has a beta of .9

Assume that the Costello Company has a beta of 1.4

a. How much is the market risk premium?

b. What is the required rate of return on the Abbott Company common stock?

c. What is the required rate of return on the Costello Company common stock?

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Finance Basics: Security market line equation and concepts

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