You own $10,000 of Dennys Corp stock that has a beta of 2.9. You also own $15,000

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You own $10,000 of Denny’s Corp stock that has a beta of 2.9. You also own $15,000 of Qwest Communications (beta = 1.5) and $5,000 of Southwest Airlines (beta = 0.7). Assume that the market return will be 11.5 percent and the risk-free rate is 4.5 percent. What is the market risk premium? What is the risk premium of each stock? What is the risk premium of the portfolio?

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Finance Applications and Theory

ISBN: 978-0077861681

3rd edition

Authors: Marcia Cornett, Troy Adair

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