The equity shares of Front Co have a beta value of 0.90. The risk-free rate of return is 5% and the market risk premium is 4%. Tax is 25%. What is the return on the shares of Front Co?
The correct answer is: 8.6%.
Return per CAPM = Rf + (E (rm) - Rf)
Return = 5% + (0.90 x 4%) = 8.6%.
Note: market risk premium = (rm - Rf)
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