Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

A stock has a required return of 16%, the risk-free rate is 7.5%, and the market risk premium is 3%. a. What is the stock's

image text in transcribed

A stock has a required return of 16%, the risk-free rate is 7.5%, and the market risk premium is 3%. a. What is the stock's beta? Round your answer to two decimal places. b. If the market risk premium increased to 4%, what would happen to the stock's required rate of return? Assume that the risk-free rate and the beta remain unchanged. Do not round intermediate calculations. Round your answer to two decimal places. I. If the stock's beta is equal to 1.0, then the change in required rate of return will be less than the change in the market risk premium. II. If the stock's beta is greater than 1.0, then the change in required rate of return will be greater than the change in the market risk premium. III. If the stock's beta is less than 1.0, then the change in required rate of return will be greater than the change in the market risk premium. IV. If the stock's beta is greater than 1.0, then the change in required rate of return will be less than the change in the market risk premium. V. If the stock's beta is equal to 1.0, then the change in required rate of return will be greater than the change in the market risk premium. -Select- Stock's required rate of return will be

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Benchmarking Islamic Finance

Authors: Mohd Ma'Sum Billah

1st Edition

0367546469, 978-0367546465

More Books

Students also viewed these Finance questions

Question

=+What virtue?

Answered: 1 week ago

Question

Define and measure service productivity.

Answered: 1 week ago