Question

Click here to read the eBook: The Relationship Between Risk and Rates of Return BETA AND REQUIRED RATE OF RETURN A stock has a required return of 11%; the risk-free rate is 5.5%; and the market risk premium is 4%. a. What is the stock's beta? Round your answer to two decimal places. premium b. If the market risk premium increased to 9%, what would happen to the stock's required rate of retum? Assume that the risk-free rate and the beta remain unchanged. 1. If the stock's beta is greater than 1.0, then the change in required rate of return will be greater than the change in the market risk II. If the stock's beta is less than 1.0, then the change in required rate of return will be greater than the change in the market risk III. If the stock's beta is greater than 1.0, then the change in required rate of return will be less than the change in the market risk premium. IV. If the stock's beta is equal to 1.0, then the change in required rate of return will be greater than the change in the market risk V. If the stock's beta is equal to 1.0, then the change in required rate of return will be less than the change in the market risk premium. premium. premium. -Select- New stock's required rate of return will be %. Round your answer to two decimal places

Answer 1

B A 1 a. 2 b. 3 New required rate: 4 5 Required rate with beta of 0.5 1.38 The correct statement is I. 17.88% 7.50%

calc:

a. А B 1 =(11%-5.5%)/4% 2 b. The correct statement is I. 3 New required rate: =5.5%+B1*9% 4 5 Required rate with beta of 0.5 +5%+0.5*(10%-5%)