a) as per CAPM formula,
required rate of return = risk free rate + beta * market risk premium
13% = 4.5% + beta * 3%
beta = 2.83
b) ans) first option
as per the formula, if market risk premium increases, since it is getting multiplied with beta, if beta is greater than 1, then change in required rate of return will be greater than the change in market risk premium
required rate of return = 4.5% + 2.83*6% = 21.48
which is clearly visible from here, the market risk premium increased by 3% where as required rate of return increased by more than 3%
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