The total market value of the common stock of the Okefenokee Real Estate Company is 6 million and the total value of its debt is 4 million. The treasurer estimates that the beta of the stock is currently 1.5 and that the expected risk premium (rm - rf) on the market is 6%. The Treasury bill rate (rf)is 4%. Assume for simplicity that Okefenokee debt is risk-free and the company does not pay tax. What is correct value of the required return on the stock.
In this question, we are given beta of the stock as 1.5, Treasury bill rate as 4% and risk premium of the market as 6%.
-Define a function with the name "return_on_the_stock" which will take argument treasury bill rate, risk premium, and beta.
The signature of the function should be like:
def return_on_stock(treasury_bill_rate, beta, risk_premium):
Use the following formula:
r = (rf + b*rp)
Where,
r = Required return on stocks, rf = treasury_bill_rate, b = beta, rp = risk_premium
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