Calculate the required rate of return for Climax Inc., assuming that (1) investors expect a 4.0...

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Calculate the required rate of return for Climax Inc., assuming that (1) investors expect a 4.0 % rate of inflation in the fu

REQUIRED RATE OF RETURN Stock R has a beta of 1, Stock S has a beta of 0.7, the required return on an average stock is 11 %,

Mike Flannery holds the following portfolio: Stock Investment Beta $150,000 $10,000 $140,000 $75,000 $375,000 1.40 0.80 1.00

Jim Angel holds a $200,000 portfolio consisting of the following stocks: Stock Investment $50,000 $50,000 $50,000 $50,000 $20

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Answer 1

Answer #1

1.
=real risk free rate+inflation+beta*market risk premium
=3%+4%+2.30*4.5%
=17.35%

2.
=Difference in beta*(return on average stock-risk free rate)
=(1-0.7)*(11%-3%)
=2.40%

3.
=(150000*1.40+10000*0.80+140000*1+75000*1.2)/375000
=1.194667

4.
=(1.20+0.80+1+1.2)/4
=1.050000

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Answer 2

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