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Question
Olson Corporation has a beta coefficient of 1.5 at a debt/assets ratio equal to 40 percent. The risk-free rate of return, rRF, is 5 percent and the market return, rM, is 9 percent. Based on the capital asset pricing model (CAPM), what is Olson's required rate of return on its common equity?
a. 18.5%
b. 13.5%
c. 11.0%
d. 15.0%
e. 6.0%
Answer
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