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A few years ago, the Value Line Investment Survey reported the following market betas for the stocks of selected healthcare providers: Company Beta Tenet Healthcare
A few years ago, the Value Line Investment Survey reported the following market betas for the stocks of | |||||||||
selected healthcare providers: | |||||||||
Company | Beta | ||||||||
Tenet Healthcare | 0.80 | ||||||||
Beverly Enterprises | 1.10 | ||||||||
HCA Healthcare | 1.35 | ||||||||
United Health Group | 1.60 | ||||||||
At the time these betas were developed, reasonable estimates for the risk-free rate, RF, and the required | |||||||||
rate of return on the market, R(Rm), were 6.5 percent and 13.5 percent, respectively. | |||||||||
a. What are the required rates of return on the four stocks? | |||||||||
b. Why do their required rates of return differ? | |||||||||
c. Suppose that a person is planning to invest in only one stock rather than hold a well-diversified stock | |||||||||
portfolio. Are the required rates of return calculated above applicable to the investment? Explain your | |||||||||
answer. |
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