Question

REQUIRED RATE OF RETURN (Percent) <Back to Assignment Attempts: Keep the Highest: /5 8. Changes to the security market line The following graph plots the current security market line (SML) and indicates the return that investors require from holding stock from Happy Corp. (HC). Based on the graph, complete the table that follows. 20.0 18.0 12.0 Return on HC's Sfock 8.0 4.0 0.5 1.0 1.5 2.0 0 RISK (Beta) 11/

Answer 1

1. Risk free return = 2%

2. Market risk premium = 6% [8% -2%]

3. Stock's beta = 1

4. Required rate of return = 8% [ 2%+ 6%*1]

5. New required rate of return = 11% [ 8% +3%]

6. higher

7. High beta stocks