Stock R has a beta of 1.3, Stock S has a beta of 0.35, the expected rate of return on an average stock is 10%, and the risk-free rate is 6%. By how much does the required return on the riskier stock exceed that on the less risky stock? Do not round intermediate calculations. Round your answer to two decimal places. Burnwood Tech plans to issue some $80 par preferred stock with a 6% dividend. A similar stock is selling on the market for $95. Burnwood must pay flotation costs of 5% of the issue price. What is the cost of the preferred stock? Round your answer to two decimal places.
Risk and return
Before understanding the concept of Risk and Return in Financial Management, understanding the two-concept Risk and return individually is necessary.
Capital Asset Pricing Model
Capital asset pricing model, also known as CAPM, shows the relationship between the expected return of the investment and the market at risk. This concept is basically used particularly in the case of stocks or shares. It is also used across finance for pricing assets that have higher risk identity and for evaluating the expected returns for the assets given the risk of those assets and also the cost of capital.
Stock R has a beta of 1.3, Stock S has a beta of 0.35, the expected
Burnwood Tech plans to issue some $80 par
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