Question
1. The risk free rate on a stock is 3%, the required rate in the market is 7%, and the beta is 1.6. This is
1. The risk free rate on a stock is 3%, the required rate in the market is 7%, and the beta is 1.6. This is the original position. Calculate the required rate of return, r. 2 points, show work
2. Now assume that investors are fearful, uneasy, with the current market situation and require a higher rate of return in the market. Thus, rm increases by 2.5%. Calculate the required rate of return. 2 points, show work
What happens to the SML? Circle one: 1 point
Shifts Up or Shifts Down or Pivots Up or Pivots Down
What happens to the slope? Circle one: 1 point
Slope remains the same or Slope gets steeper or Slope gets flatter
3. Now assume that investors are confident, at ease, with the current market situation and require a lower rate of return in the market. Thus, rm decreases by 1%. Calculate the required rate of return. 2 points, show work
What happens to the SML? Circle one: 1 point
Shifts Up or Shifts Down or Pivots Up or Pivots Down
What happens to the slope? Circle one: 1 point
Slope remains the same or Slope gets steeper or Slope gets flatter
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started
The Ages Of The Investor A Critical Look At Life Cycle Investing
Authors: William J Bernstein
1st Edition
1478227133, 978-1478227137
