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Hi John,
Why was the the risk free rate not deducted from market rate,shouldnt it have been (1.3 × [8-3]%)
13.4%
The equity beta relates to the cost of equity, hence gearing and the debt beta are not relevant.
E(ri) = Rf + ? (E(Rm) – Rf) = 3% + (1.3 × 8%) = 13.4%
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