EE eBook Stock R has a beta of 2.5, Stock S has a beta of 0.75, the required return on an average stock is 11%, and the risk-free rate of return is 3%. By how much does the required return on the riskier stock exceed the required return on the less risky stock? Round your answer to two decimal places. %
EE eBook Stock R has a beta of 2.5, Stock S has a beta of 0.75, the required return on an average stock is 11%, and the risk-free rate of return is 3%. By how much does the required return on the riskier stock exceed the required return on the less risky stock? 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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![**Exercise: Understanding Risk and Return**
Stock R has a beta of 2.5, Stock S has a beta of 0.75. The required return on an average stock is 11%, and the risk-free rate of return is 3%. By how much does the required return on the riskier stock exceed the required return on the less risky stock? Round your answer to two decimal places.
**Input your answer below:**
[ ] %
---
In this exercise, you will calculate and compare the required returns for two stocks with different betas to understand how risk influences expected returns. Use the Capital Asset Pricing Model (CAPM) for your calculations, where:
\[ \text{Required Return} = \text{Risk-Free Rate} + \beta \times (\text{Market Return} - \text{Risk-Free Rate}) \]
Good luck!](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fbb5aba3c-4931-42d1-80b4-3d9f41ab8cf8%2Ffe1f08fc-3212-4255-a3c7-db8c67cc4ee6%2Fmvqqsb_processed.jpeg&w=3840&q=75)
Transcribed Image Text:**Exercise: Understanding Risk and Return**
Stock R has a beta of 2.5, Stock S has a beta of 0.75. The required return on an average stock is 11%, and the risk-free rate of return is 3%. By how much does the required return on the riskier stock exceed the required return on the less risky stock? Round your answer to two decimal places.
**Input your answer below:**
[ ] %
---
In this exercise, you will calculate and compare the required returns for two stocks with different betas to understand how risk influences expected returns. Use the Capital Asset Pricing Model (CAPM) for your calculations, where:
\[ \text{Required Return} = \text{Risk-Free Rate} + \beta \times (\text{Market Return} - \text{Risk-Free Rate}) \]
Good luck!
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