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If the Market's Required Risk Premium on the Return to Equity

question 25

Essay

If the market's required risk premium on the return to equity is 6% with a 50% loan/value ratio, what is the required equity risk premium with a 70% loan/value ratio? Assume riskless debt at either L/V ratio.)


Definitions:

Indirect Method

A method of calculating cash flows from operating activities in the cash flow statement by adjusting net income for changes in balance sheet items.

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