Problem 8-10 CAPM and required return Beale Manufacturing Company has a beta of 1.4, and Foley...

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Problem 8-10 CAPM and required return Beale Manufacturing Company has a beta of 1.4, and Foley Industries has a beta of 0.95.

Answer 1

Answer #1

Required return=risk free rate+beta*(market rate-risk free rate)

Required return for:

Beale=5.75+(10-5.75)*1.4=11.7%

Foley=5.75+(10-5.75)*0.95=9.7875%

Hence difference=11.7-9.7875

=1.91%(Approx).

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Answer 2

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