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CAPM AND REQUIRED RETURN HR Industries (HRI) has a beta of 1.8, while LR Industries’ (LRI) beta is 0.6. The risk-free rate is 6%, and the required rate of return on an average stock is 13%. The expected rate of inflation built into r RF falls by 1.5 percentage points, the real risk-free rate remains constant, the required return on the market falls to 10.5%, and all betas remain constant. After all of these changes, what will be the difference in the required returns for HRI and LRI?

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Fundamentals of Financial Manageme...

14th Edition
Eugene F. Brigham + 1 other
Publisher: Cengage Learning
ISBN: 9781285867977
BuyFind

Fundamentals of Financial Manageme...

14th Edition
Eugene F. Brigham + 1 other
Publisher: Cengage Learning
ISBN: 9781285867977

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Chapter
Section
Chapter 8, Problem 15P
Textbook Problem

CAPM AND REQUIRED RETURN HR Industries (HRI) has a beta of 1.8, while LR Industries’ (LRI) beta is 0.6. The risk-free rate is 6%, and the required rate of return on an average stock is 13%. The expected rate of inflation built into rRF falls by 1.5 percentage points, the real risk-free rate remains constant, the required return on the market falls to 10.5%, and all betas remain constant. After all of these changes, what will be the difference in the required returns for HRI and LRI?

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Chapter 8 Solutions

Fundamentals of Financial Management (MindTap Course List)
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Ch. 8 - PORTFOLIO BETA An individual has 35,000 invested...Ch. 8 - REQUIRED RATE OF RETURN Assume that the risk-free...Ch. 8 - EXPECTED AND REQUIRED RATES OF RETURN Assume that...Ch. 8 - BETA AND REQUIRED RATE OF RETURN A stock has a...Ch. 8 - EXPECTED RETURNS Stocks X and Y have the following...Ch. 8 - PORTFOLIO REQUIRED RETURN Suppose you are the...Ch. 8 - BETA COEFFICIENT Given the following information...Ch. 8 - REQUIRED RATE OF RETURN Stock R has a beta of 1.5,...Ch. 8 - CAPM AND REQUIRED RETURN Bradford Manufacturing...Ch. 8 - CAPM AND REQUIRED RETURN Calculate the required...Ch. 8 - REQUIRED RATE OF RETURN Suppose rRF = 9%, rM = 14%...Ch. 8 - CAPM, PORTFOLIO RISK. AND RETURN Consider the...Ch. 8 - PORTFOLIO BETA Suppose you held a diversified...Ch. 8 - CAPM AND REQUIRED RETURN HR Industries (HRI) has a...Ch. 8 - CAPM AND PORTFOLIO RETURN You have been managing a...Ch. 8 - PORTFOLIO BETA A mutual fund manager has a 20...Ch. 8 - EXPECTED RETURNS Suppose you won the lottery and...Ch. 8 - EVALUATING RISK AND RETURN Stock X has a 10%...Ch. 8 - REALIZED RATES OF RETURN Stocks A and B have the...Ch. 8 - SECURITY MARKET LINE You plan to invest in the...Ch. 8 - EVALUATING RISK AND RETURN Bartman Industriess and...Ch. 8 - RISK AND RETURN Assume that you recently graduated...Ch. 8 - Using Past Information to Estimate Required...Ch. 8 - Using Past Information to Estimate Required...Ch. 8 - Using Past Information to Estimate Required...Ch. 8 - Using Past Information to Estimate Required...Ch. 8 - Using Past Information to Estimate Required...Ch. 8 - Using Past Information to Estimate Required...Ch. 8 - Using Past Information to Estimate Required...

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