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.
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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
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- A stock has a required return of 11%, the risk- free is 7%, and the market risk premium is 4%. a. What is the stock's beta? b. If the market risk premium increased to 6%, what would happen to the stock's required rate of return? What would it be? 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.How do you find the market risk premium and market expected return given the expected return of stock, beta, and risk free rate? Example: The expected return of a stock with a beta of 1.2 is 16.2%. Calculate the market risk premium and the market expected return, given a risk-free rate of 3%.
- What will happen to a stock’s risk premium if its beta doubles and the market risk premium doubles? A. The risk premium will be unchanged. B. The risk premium will decrease by a factor of 2. C. The risk premium will increase by a factor of 4. D. The risk premium will increase by a factor of 2.A stock has a required return of 15%; the risk- free rate is 2.5%, and the market risk premium is 5%. a. What is the stock's beta? b. If the market risk premium increased to 10%, what would happen to the stock's required rate of return? Assume that the risk-free rate and the beta remain unchanged.(d) Suppose the risk-free rate is 4%, the market risk premium is 15% and the betas for stocks X and Y are 1.2 and 0.2 respectively. Using the CAPM model, estimate the required rates of return of Stock X and Stock Y. (e) Given the results above, are Stocks X and Y overpriced or underpriced? Explain.
- A stock's risk premium is equal to the: expected market risk premium times beta. expected market risk premium multiplied by beta plus the risk-free return. Risk-free return plus expected market return. expected market return times beta.Which of the following statements is CORRECT? (Assume that the risk-free rate is a constant.) a. The effect of a change in the market risk premium depends on the slope of the yield curve. b. If the market risk premium increases by 1%, then the required return on all stocks will rise by 1%. c. If the market risk premium increases by 1%, then the required return will increase by 1% for a stock that has a beta of 1.0. d. The effect of a change in the market risk premium depends on the level of the risk-free rate. e. If the market risk premium increases by 1%, then the required return will increase for stocks that have a beta greater than 1.0, but it will decrease for stocks that have a beta less than 1.0.(d) Suppose the risk-free rate is 4%, the market risk premium is 15% and the betas for stocks X and Y are 1.2 and 0.2 respectively. Using the CAPM model, estimate the required rates ofreturn of Stock X and Stock Y. (e) Given the results above, are Stocks X and Y overpriced or underpriced? Explain.
- Suppose Stock A has B = 1 and an expected return of 11%. Stock B has a B = 1.5. The risk- free rate is 5%. Also consider that the covariance between B and the market is 0.135. Assume the CAPM is true. Answer the following questions: a) Calculate the expected return on share B. b) Find the equation of the Capital Market Line (CML). c) Build a portfolio Q with B = 0 using actions A and B. Indicate weights (interpret your result) and expected return of portfolio Q.c) Assume that using the Security Market Line (SML) the required rate of return (Ra) on stock A is found to be half of the required return (Rs) on stock B. The risk-free rate (R:) is one-fourth of the required return on A. Return on market portfolio is denoted by RM. Find the ratio of beta of A (Ba) to beta of B (B).Suppose risk-free rate of return = 2%, market return = 7%, and Stock B’s return = 11%. a. Calculate Stock B’s beta. b. If Stock B’s beta were 0.80, what would be its new rate of return?