Question
Recently, Yahoo Finance reported the following market betas for the stocks of selected healthcare providers listed below: Company Beta Quorum Health Corporation (QHC) 1.86 HCA
Recently, Yahoo Finance reported the following market betas for the stocks of selected healthcare providers listed below:
Company | Beta |
Quorum Health Corporation (QHC) | 1.86 |
HCA Healthcare, Inc. (HCA) | 1.14 |
UnitedHealth Group Incorporated (UNH | 0.88 |
Johnson & Johnson (JNJ) | 0.31 |
At the time these betas were developed, reasonable estimates for the risk-free rate and required rate of return on the market were 4 percent and 12 percent respectively.
a. What are the required rates of return on the four stocks? (Complete the following table)
Company | Required rates of return |
Quorum Health Corporation (QHC) |
|
HCA Healthcare, Inc. (HCA) |
|
UnitedHealth Group Incorporated (UNH |
|
Johnson & Johnson (JNJ) |
|
b. Why do their required rates of return differ?
c. Suppose that a person is planning to invest in only one stock rather than a well-diversified stock portfolio. Are the required rates of return calculated above applicable to the investment? Please explain.
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