Stock R has a beta of 2.4, Stock S has a beta of 0.35, the required return on an average stock is 13%, and the risk-free rate of return is 7%. By how much does the required return on the riskier stock exceed the required return on the less risky stock? Round your answer to two decimal places. |
Expected return = risk free rate + beta * market risk premium
=>
expected return of R = 7% + 2.4 * (13% - 7%)
= 21.4%
expected return of S = 7% + 0.35 * (13% - 7%)
= 9.1%
difference = 21.4% - 9.1%
= 12.3% ................ans
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8.9/8.10
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