Fundamentals of Financial Manageme...
Solutions
Fundamentals of Financial Manageme...
If a company’s beta were to double, would its required return also double?
To explain: The effect on required return if the beta is doubled.
Introduction:
Portfolio Beta:
The portfolio beta is a measure of the volatility of the portfolio. It measures how the stock moves in the market. A high portfolio beta shows that securities are more volatile in the price movements while a low beta represents that securities are less volatile in the price movements.
To know the effect on required return, it is better explained by the calculation of required return.
Assuming,
The beta of the stock is 1,
The risk-free rate is 5%, and
The expected return on the market is 11%.
Calculation of the required return,
The required return is 11%
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