1.

Assume that the risk-free rate is 5% and the required return on the market is 12%. What is the required rate of return on a stock with a beta of 0.8? Round your answer to two decimal places.

2.

Assume that the risk-free rate is 6% and the market risk premium is 8%.

1. What is the required return for the overall stock market? Round your answer to two decimal places.

2. What is the required rate of return on a stock with a beta of 0.7? Round your answer to two decimal places.

3.

A stock has a required return of 12%; the risk-free rate is 4%; and the market risk premium is 3%.

1. What is the stock's beta? Round your answer to two decimal places.
2. If the market risk premium increased to 8%, what would happen to the stock's required rate of return? 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 the required rate of return will be less than the change in the market risk premium.
   2. If the stock's beta is equal to 1.0, then the change in the required rate of return will be greater than the change in the market risk premium.
   3. If the stock's beta is equal to 1.0, then the change in the required rate of return will be less than the change in the market risk premium.
   4. 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.
   5. If the stock's beta is less than 1.0, then the change in the required rate of return will be greater than the change in the market risk premium.
   -Select-IIIIIIIVVItem 2 New stock's required rate of return will be %. Round your answer to two decimal places.