Question
4.A stock has a beta of 1.25, the expected return on the market is 15 percent, and the risk-free rate is 6 percent. a.What must
4.A stock has a beta of 1.25, the expected return on the market is 15 percent, and the risk-free rate is 6 percent.
a.What must the expected return on this stock be?
b.Draw the Security Market Line (SML) -be sure to label all relevant points-
c.Suppose the risk free rate falls to 4%.What is the expected return on this stock?Redraw the SML.How has the shape of the curve changed?
d.Suppose the expected return on the market is now 12 percent and the risk freerate is 6%.What is the expected return on his stock?Redraw the SML.How hasthe shape changed from the first graph you created?
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Foundations Of Finance
Authors: Arthur J. Keown, John H. Martin, J. William Petty
10th Edition
0135160618, 978-0135160619
