Question 3
a. Northern Corporation’s stock has a beta of 1.4. Short term government securities yield 5% and the
market portfolio offers an expected return of 14%. Find the required return on Northern’s stock. (2
marks
The required return on Northern’s stock is:
"RRR = 0.05 + 1.4\u00d7(0.14 - 0.05) = 0.176"
or 17.6%.
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