A stock has a required return of 9%, the risk-free rate is 3.5%, and the market risk premium is 4%.
______
If the market risk premium increased to 6%, what would happen to the stock's required rate of return? Assume that the risk-free rate and the beta remain unchanged. Do not round intermediate calculations. Round your answer to two decimal places.
C. Stock's required rate of return will be %.
PLEASE SHOW WORK PLEASE. SHOW HOW IN CALCULATOR OR BASIC MATH STRUCTURE IF POSSIBLE. THANK YOU
1) Stock beta =(Expected rate-risk free rate)/risk premium
=(9%-3.5%)/4%
=1.38
2) If the stock's beta is greater than 1.0, then the change in the required rate of return will be greater than the change in the market risk premium.
3)
Required rate =Rf rate+beta*risk premium
=3.5%+1.38*6%
=11.75%
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