Problem:
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
Required:
Question 1: How much is the market risk premium?
Question 2: What is the required rate of return on the Abbott Company common stock?
Question 3: What is the required rate of return on the Costello Company common stock?
Note: Please show guided help with steps and answer.