The rate of return for an Australian Commonwealth Government Treasury Bond is given as 4% per annum. The yearly return for the Australian share market is given as 12%. Suppose a listed company has a beta value of 0.5.
(a) Calculate the market premium.
(b) Calculate the investor’s required rate of return for the company’s shares.
(c) If the expected rate of return for the company’s shares was 10% per annum, would you buy shares in the company? Explain your answer.
The question belongs to Finance and it discusses about calculation of market premium, investor’s required rate of return and the expected rate of return for a listed company with beta value of 0.5.
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