Nagel Equipment has a beta of 0.88 and an expected dividend growth rate of 4.00% per year.The T-bill rate is 4.00%,and the T-bond rate is 5.25%.The annual return on the stock market during the past 4 years was 10.25%.Investors expect the average annual future return on the market to be 14.75%.Using the SML,what is the firm's required rate of return? Do not round your intermediate calculations.
A) 13.61%
B) 11.57%
C) 12.25%
D) 14.70%
E) 12.11%

Question

Quizplus · Accepted Answer

? Use SML to determine the market risk premium.Note that r_RF is based on T-bonds,not short-term T-bills.Also,note that the dividend growth rate is not needed. 11ea856c_8bc9_77c5_9aec_2db0e7f234a1_TB1222_00 Use SML to determine Nagel's required return using RP_M calculated above 11ea856c_8bc9_77c6_9aec_1f00b3d3e8d6_TB1222_00 ?

Nagel Equipment Has a Beta of 0