Question
Not sure how to answer the following questions Suppose that the Treasury bill rate is 8% rather than 5%, as we assumed inTable 12.1,and the
Not sure how to answer the following questions
Suppose that the Treasury bill rate is 8% rather than 5%, as we assumed inTable 12.1,and the expected return on the market is 10%. Use the betas in that table to answer the following questions.
a.When you assume this higher risk-free interest rate, what makes sense for how you should modify your assumption about the rate of return on the market portfolio?
b.Recalculate the expected return on the stocks inTable 12.1.
c.Suppose now that you continued to assume that the expected return on the market remained at 10%. Now what would be the expected returns on each stock?
d.Ford offer a higher or lower expected return if the interest rate is 8% rather than 5%?
e.Walmart offer a higher or lower expected return if the interest rate is 8% rather than 5%?
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