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
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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Step 1
As per CAPM,
required rate of return = risk free rate + beta * (return on market - risk free rate)
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