SHOW WORK PLEASE! Complete problem: Required Rate of Return Show your work. Suppose rRF = 6%;...

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Question

SHOW WORK PLEASE!

Complete problem: Required Rate of Return Show your work. Suppose rRF = 6%; rM = 10%; and rA = 14%

a. Calculate Stocks A’s beta.

b. If Stock A’s beta were 2.0, then what would be A’s new required rate of return?

Answer 1

Answer #1

	As per CAPM Model,

	rA = rRF + ß(rM - rRF)

	Where,




a.	Calculation of Stock A's Beta

	rA = rRF + ß(rM - rRF)

	14% = 6% + ß (10% - 6%)

	14% - 6% = ß x 4%

	ß = 8% / 4%

	ß = 2

b.	As we calculated in (a) above, A's Required Rate of Return is 14% @ Beta (ß) 2.
	Therefore, if Stock A's Beta were 2 then A's Required Rate of Return will be 14%.

Answer 2

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