A stock has a required return of 9%, the risk-freerate is 4.5%, and the market risk premium is 3%.a. What is the stock’s beta?b. If the market risk premium increased to 5%, what would happen to the stock’srequired rate of return? Assume that the risk-free rate and the beta remain unchanged.

A stock has a required return of 9%, the risk-freerate is 4.5%, and the market risk premium is 3%.a. What is the stock’s beta?b. If the market risk premium increased to 5%, what would happen to the stock’srequired rate of return? Assume that the risk-free rate and the beta remain unchanged.

EBK CFIN

6th Edition

ISBN:9781337671743

Author:BESLEY

Publisher:BESLEY

Chapter8: Risk And Rates Of Return

Section: Chapter Questions

Problem 14PROB

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Question

A stock has a required return of 9%, the risk-free
rate is 4.5%, and the market risk premium is 3%.
a. What is the stock’s beta?
b. If the market risk premium increased to 5%, what would happen to the stock’s
required rate of return? Assume that the risk-free rate and the beta remain unchanged.

Definition Definition Percentage gain or loss from a specific investment over time. The rate of return is the difference between the closing and initial values of an investment divided by the initial value of the investment. The closing value includes any intermediate cash flows such as dividends or interest amounts.

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