The required rate of return on the Daisy Corporationʹs common stock is 11%, the current real rate of return in the market is 1%, and the marketʹs risk-free rate of return is 4%. In this case, the risk premium associated with Daisyʹs stock is * 5%. 6%. 7%. 8%.

The required rate of return on the Daisy Corporationʹs common stock is 11%, the current real rate of return in the market is 1%, and the marketʹs risk-free rate of return is 4%. In this case, the risk premium associated with Daisyʹs stock is * 5%. 6%. 7%. 8%.

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter8: Analysis Of Risk And Return

Section: Chapter Questions

Problem 14P

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Concept explainers

Risk and return

Before understanding the concept of Risk and Return in Financial Management, understanding the two-concept Risk and return individually is necessary.

Capital Asset Pricing Model

Capital asset pricing model, also known as CAPM, shows the relationship between the expected return of the investment and the market at risk. This concept is basically used particularly in the case of stocks or shares. It is also used across finance for pricing assets that have higher risk identity and for evaluating the expected returns for the assets given the risk of those assets and also the cost of capital.

Question

Definition Definition Percentage gain or loss from a specific investment over time. The rate of return is the difference between the closing and initial values of an investment divided by the initial value of the investment. The closing value includes any intermediate cash flows such as dividends or interest amounts.

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