You are given information on two stocks. Stock AXE has a required return of 12.25% and analysts expected the stock to provide a return of 13%. The beta of AXE stock is 1.15. Stock NIP has a beta of 1.6 and analysts expected the returns of Stock NIP to be 14%. The risk-free rate is 5%. What is the market risk premium? What is the required return

EBK CFIN
6th Edition
ISBN:9781337671743
Author:BESLEY
Publisher:BESLEY
Chapter8: Risk And Rates Of Return
Section: Chapter Questions
Problem 17PROB
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You are given information on two stocks. Stock AXE has a required return of 12.25% and analysts expected the stock to provide a return of 13%. The beta of AXE stock is 1.15. Stock NIP has a beta of 1.6 and analysts expected the returns of Stock NIP to be 14%. The risk-free rate is 5%. What is the market risk premium?

What is the required return of Stock NIP?

Which of the two stocks would you purchase and why?

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