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
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
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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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