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Beale Manufacturing Company has a beta of 1.5, and Foley Industries has a beta of 0.4. The required return on an index fund that holds the entire stock market is 12.5%. The risk-free rate of interest is 6.5%. By how much does Beale's required return exceed Foley's required return? Do not round intermediate calculations. Round your answer to two decimal places.

Beale Manufacturing Company has a beta of 1.5, and Foley Industries has a beta of 0.4. The required return on an index fund that holds the entire stock market is 12.5%. The risk-free rate of interest is 6.5%. By how much does Beale's required return exceed Foley's required return? Do not round intermediate calculations. Round your answer to two decimal places.

Essentials Of Investments
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
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Beale Manufacturing Company has a beta of 1.5, and Foley Industries has a beta of 0.4. The required return on an index fund that holds the entire stock market is 12.5%. The risk-free rate of interest is 6.5%. By how much does Beale's required return exceed Foley's required return? Do not round intermediate calculations. Round your answer to two decimal places.
Transcribed Image Text:Beale Manufacturing Company has a beta of 1.5, and Foley Industries has a beta of 0.4. The required return on an index fund that holds the entire stock market is 12.5%. The risk-free rate of interest is 6.5%. By how much does Beale's required return exceed Foley's required return? Do not round intermediate calculations. Round your answer to two decimal places.
Expert Solution
Step 1

As per CAPM,

required rate of return = risk free rate + beta * (return on market - risk free rate)

 

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