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What is the estimated discount rate of ABC (assume beta=1.5)? Assume the market risk premium (E[rm]-rf)...

What is the estimated discount rate of ABC (assume beta=1.5)? Assume the market risk premium (E[rm]-rf) is 5% and assume the risk-free rate is 1%.

A. 9%

B. 4.5%

C. 6%

D. 8.5%

Solutions

Expert Solution

The correct option is D i.e 8.5%

Working:

Discount rate = Rf + Beta * (Rm - Rf)

= 1% + (1.5 * 5)

= 1% + 7.5%

= 8.5%

jeff jeffy answered 2 years ago
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