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Question

You have run a regression of monthly returns on TXBT, a large biotechnology firm, against monthly returns on the S&P 500 index, and come up with the following output

R_{stock} = 2.34% + 1.77 x R_{Market}

R^{2}= 0.4

The current one-year Treasury bill rate is 3.3 and the current thirty-year bond rate is 8%. The firm has 132 million shares outstanding, selling for $73.36 per share. The short term equity risk premium is 5.1 and the long term equity risk premium is 7.7. What is the expected return on this stock for a thirty year capital budgeting project?

(Answer Format to two decimal places with NO PERCENT SIGN, for example, for three percent put: 3.00)