HR Industries (HRI) has a beta of 1.6; LR Industries’s(LRI) beta is 0.8. The risk-free rate is 6%, and the required rate of return on an averagestock is 13%. The expected rate of inflation built into rRF falls by 1.5 percentage points, thereal risk-free rate remains constant, the required return on the market falls to 10.5%, and allbetas remain constant. After all of these changes, what will be the difference in the requiredreturns for HRI and LRI?

HR Industries (HRI) has a beta of 1.6; LR Industries’s(LRI) beta is 0.8. The risk-free rate is 6%, and the required rate of return on an averagestock is 13%. The expected rate of inflation built into rRF falls by 1.5 percentage points, thereal risk-free rate remains constant, the required return on the market falls to 10.5%, and allbetas remain constant. After all of these changes, what will be the difference in the requiredreturns for HRI and LRI?

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter12: The Cost Of Capital

Section: Chapter Questions

Problem 22P

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