Problem 2:

a. Calculate the required rate of return for an asset that has a beta of 1.80, given arisk-free rate of 5.0%and a market return of 10.0%.

b.If investors have become morerisk-averse due to recent geopoliticalevents, and the market return rises to13.0%, what is the required rate of return for the same asset?

c.How does risk affect the required return on an asset? How does it affect the value of the asset?