A stock has a beta of 1. The pure rate of interest is 3.5 percent and investors require a 3 percent inflation premium.

A stock has a beta of 1.8. The pure rate of interest is 3.5 percent and investors require a 3 percent inflation premium. What is the required rate of return on this stock if the market risk premium is 6 percent? (Hint: First, calculate the risk-free rate using the pure rate and the inflation premium. Next, use this risk-free rate to find the required return on the stock.)

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