11 An analyst for ABC company has developed the following distribution for the next year: State of the economy Probability Stock's Return Mild Recession Moderate growth Expansion 25% 55% 20% -9% 11% 16% What is the expected return of ABC stock for the next year based on the analyst's forecasts? Expected return = % -91.25+ 116.55+ 161.20) = 7% 2) The current risk-free rate is 2%. The market risk premium is 7%. Company XYZ has a beta equal to 1.2. a) What is the expected (required) rate of return on the stock market? Required Rate of Return on the Stock Market - b) What is the required rate of return for XYZ? Required Rate of Return for XYZ 3) Calculate the required rate of return for CC Company assuming that the Investors expect the stock market to return 11% and Treasury Bills to earn 3%. Company CC has a beta of 0.7. Required rate of return = 4) BB company has a beta of 1.6, ZZ company has a beta of 0.9. The market risk premium is 7.3%. The current risk-free rate is 3.2%. By how much does BB company's required return exceed ZZ company's required return? BB's required return is % more than ZZ's required return