Respuesta :
The required rate of return on the stock of Dell company is come out to be 8.89%.
What is a stock?
Stock represents the number of shares being owned by an investor in the company on which it gets the dividends.
Given values for step 1:
The required rate of return: 12%
Beta factor: 1.40
Risk-free rate: 4.75%
Step-1 Computation of market risk premium:
[tex]\rm\ Market \rm\ risk \rm\ premium=\frac{\rm\ Required \rm\ rate \rm\ of \rm\ return-\rm\ Risk \rm\ free \rm\ rate}{\rm\ Beta \rm\ factor} \\\rm\ Market \rm\ risk \rm\ premium=\frac{\$12\%-4.75\%}{1.40} \\\rm\ Market \rm\ risk \rm\ premium=5.18\%[/tex]
Given values for step 2:
Market risk premium: 5.18%
Beta factor: 0.80
Risk-free rate: 4.75%
Step-2 Computation of required rate of return:
[tex]\rm\ Required \rm\ rate \rm\ of \rm\ return = \rm\ Risk \rm\ free \rm\ rate + ( \rm\ Market \rm\ risk \rm\ premium \times\ Beta factor) \\ \rm\ Required \rm\ rate \rm\ of \rm\ return=4.75\% + ( 5.18\% \times\ 0.80)\\ \rm\ Required \rm\ rate \rm\ of \rm\ return=8.89\%[/tex]
Therefore, the return of 8.89% comes out to be the required rate of return for the stock of Dell Company.
Learn more about the required rate of return in the related link:
https://brainly.com/question/14667431
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