A stock has a required return of 10%, the risk-free rate is 6%, and the market risk premium is 3%. a. What is the stock's beta? Round your answer to two decimal places. b. If the market risk premium increased to 7%, what would happen to the stock's required rate of return? Assume that the risk-free rate and the beta remain unchanged. Do not round intermediate calculations. Round your answer to two decimal places. I. If the stock's beta is equal to 1.0, then the change in required rate of return will be greater than the change in the market risk premium. II. If the stock's beta is equal to 1.0, then the change in required rate of return will be less than the change in the market risk premium. III. If the stock's beta is greater than 1.0, then the change in required rate of return will be greater than the change in the market risk premium. IV. If the stock's beta is less than 1.0, then the change in required rate of return will be greater than the change in the market risk premium. V. If the stock's beta is greater than 1.0, then the change in required rate of return will be less than the change in the market risk premium. V -Select- %3D required rate of return will be %.
A stock has a required return of 10%, the risk-free rate is 6%, and the market risk premium is 3%. a. What is the stock's beta? Round your answer to two decimal places. b. If the market risk premium increased to 7%, what would happen to the stock's required rate of return? Assume that the risk-free rate and the beta remain unchanged. Do not round intermediate calculations. Round your answer to two decimal places. I. If the stock's beta is equal to 1.0, then the change in required rate of return will be greater than the change in the market risk premium. II. If the stock's beta is equal to 1.0, then the change in required rate of return will be less than the change in the market risk premium. III. If the stock's beta is greater than 1.0, then the change in required rate of return will be greater than the change in the market risk premium. IV. If the stock's beta is less than 1.0, then the change in required rate of return will be greater than the change in the market risk premium. V. If the stock's beta is greater than 1.0, then the change in required rate of return will be less than the change in the market risk premium. V -Select- %3D required rate of return will be %.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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ANSWER EACH PART PLEASE!
![**Educational Website Transcript:**
A stock has a required return of 10%, the risk-free rate is 6%, and the market risk premium is 3%.
a. What is the stock's beta? Round your answer to two decimal places.
- [Input box]
b. If the market risk premium increased to 7%, what would happen to the stock's required rate of return? Assume that the risk-free rate and the beta remain unchanged. Do not round intermediate calculations. Round your answer to two decimal places.
I. If the stock's beta is equal to 1.0, then the change in required rate of return will be greater than the change in the market risk premium.
II. If the stock's beta is equal to 1.0, then the change in required rate of return will be less than the change in the market risk premium.
III. If the stock's beta is greater than 1.0, then the change in required rate of return will be greater than the change in the market risk premium.
IV. If the stock's beta is less than 1.0, then the change in required rate of return will be greater than the change in the market risk premium.
V. If the stock's beta is greater than 1.0, then the change in required rate of return will be less than the change in the market risk premium.
- [Dropdown menu with options I, II, III, IV, V]
The required rate of return will be [Input box]%.
**Explanation:**
- A question and input fields for calculating and selecting the effect of changes to the market risk premium on a stock's required rate of return, using the concept of beta.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F552bce27-2e42-4405-9478-45c26e7ea34f%2F0836770b-5d12-410e-bd80-09eacb224990%2F84n45kq_processed.jpeg&w=3840&q=75)
Transcribed Image Text:**Educational Website Transcript:**
A stock has a required return of 10%, the risk-free rate is 6%, and the market risk premium is 3%.
a. What is the stock's beta? Round your answer to two decimal places.
- [Input box]
b. If the market risk premium increased to 7%, what would happen to the stock's required rate of return? Assume that the risk-free rate and the beta remain unchanged. Do not round intermediate calculations. Round your answer to two decimal places.
I. If the stock's beta is equal to 1.0, then the change in required rate of return will be greater than the change in the market risk premium.
II. If the stock's beta is equal to 1.0, then the change in required rate of return will be less than the change in the market risk premium.
III. If the stock's beta is greater than 1.0, then the change in required rate of return will be greater than the change in the market risk premium.
IV. If the stock's beta is less than 1.0, then the change in required rate of return will be greater than the change in the market risk premium.
V. If the stock's beta is greater than 1.0, then the change in required rate of return will be less than the change in the market risk premium.
- [Dropdown menu with options I, II, III, IV, V]
The required rate of return will be [Input box]%.
**Explanation:**
- A question and input fields for calculating and selecting the effect of changes to the market risk premium on a stock's required rate of return, using the concept of beta.
![### Financial Analysis Exercise
A stock has a required return of 10%, the risk-free rate is 6%, and the market risk premium is 3%.
#### Questions:
**a. What is the stock's beta?**
*Provide your answer rounded to two decimal places.*
[Input Box for Beta]
---
**b. If the market risk premium increased to 7%, what would happen to the stock's required rate of return?**
Assume that the risk-free rate and the beta remain unchanged. Do not round intermediate calculations. Round your answer to two decimal places.
**Options:**
I. If the stock's beta is equal to 1.0, then the change in required rate of return will be greater than the change in the market risk premium.
II. If the stock's beta is equal to 1.0, then the change in required rate of return will be less than the change in the market risk premium.
III. If the stock's beta is greater than 1.0, then the change in required rate of return will be greater than the change in the market risk premium.
IV. If the stock's beta is less than 1.0, then the change in required rate of return will be greater than the change in the market risk premium.
V. If the stock's beta is greater than 1.0, then the change in required rate of return will be less than the change in the market risk premium.
[Dropdown Selector for Options]
**New stock's required rate of return will be:**
[Input Box for New Rate]%](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F552bce27-2e42-4405-9478-45c26e7ea34f%2F0836770b-5d12-410e-bd80-09eacb224990%2Fix3bcx9_processed.jpeg&w=3840&q=75)
Transcribed Image Text:### Financial Analysis Exercise
A stock has a required return of 10%, the risk-free rate is 6%, and the market risk premium is 3%.
#### Questions:
**a. What is the stock's beta?**
*Provide your answer rounded to two decimal places.*
[Input Box for Beta]
---
**b. If the market risk premium increased to 7%, what would happen to the stock's required rate of return?**
Assume that the risk-free rate and the beta remain unchanged. Do not round intermediate calculations. Round your answer to two decimal places.
**Options:**
I. If the stock's beta is equal to 1.0, then the change in required rate of return will be greater than the change in the market risk premium.
II. If the stock's beta is equal to 1.0, then the change in required rate of return will be less than the change in the market risk premium.
III. If the stock's beta is greater than 1.0, then the change in required rate of return will be greater than the change in the market risk premium.
IV. If the stock's beta is less than 1.0, then the change in required rate of return will be greater than the change in the market risk premium.
V. If the stock's beta is greater than 1.0, then the change in required rate of return will be less than the change in the market risk premium.
[Dropdown Selector for Options]
**New stock's required rate of return will be:**
[Input Box for New Rate]%
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