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6-7 Require Rate of Return Suppose rRF = 5%, rM = 10%, and rA = 12% a. Calculate Stock A's beta. b. If Stock A's
6-7
Require Rate of Return Suppose rRF = 5%, rM = 10%, and rA = 12%
a. Calculate Stock A's beta.
b. If Stock A's beta were 2.0, then what would be A's new required rate of return?
6-8
Require Rate of Return As an equity analyst you are concerned with what will happen to the required return to Universal Toddler Industries's stock as market conditions change. Suppose rRF = 5%, rM = 12%, and bUTI = 1.4.
a. Under current conditions, what is rUTI, the required rate of return on UTI stock?
b. Now suppose rRF (1) increases to 6% or (2) decreases to 4%. The slope of the SML remains constant. How much this affect rM and rUTI?
c. Now assume rRF remains at 5% but rM (1) increases to 14% or (2) falls to 11%. The slope of the SML does not remain constant. How would these changes affect rUTI?
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