During the period 20X120X3, Art Levinsen Corporation's closest competitor had stock price activity that resulted in an average stock return of 25.7% with a standard deviation of 19.275%. This competitors beta is 1.20. The average rate on U.S. Treasury bonds was 5% and is considered to be the risk free rate of return.
a. Calculate the required rates of return for Art Levinsen Corporation and for its competitor. Show calculations.
b. If the return on the market were to fall from its current level of 12% to 9%, what would be the resulting impact on required return for Art Levinsen Corporation and its competitor?