a. The current risk-free rate (RF) is 10 percent, and the expected return on the market for

Question:

a. The current risk-free rate (RF) is 10 percent, and the expected return on the market for the coming year is 15 percent. Calculate the required rate of return for (1) stock A, with a beta of 1.0, (2) stock B, with a beta of 1.7, and (3) stock C, with a beta of 0.8.

b. How would your answers change if RF in part (a) were to increase to 12 percent, with the other variables unchanged?

c. How would your answers change if the expected return on the market changed to 17 percent, with the other variables unchanged?

Expected Return
The expected return is the profit or loss an investor anticipates on an investment that has known or anticipated rates of return (RoR). It is calculated by multiplying potential outcomes by the chances of them occurring and then totaling these...