Furniture Inc. has a beta coefficient of 0.7 and a required rate of return of 15%. The market risk premium is currently 5%.If the inflation premium increases by 2%, and Furniture Inc. acquires new assets that increase its beta by 50%,what will be Furniture Inc.'s new required rate of return?14.50%а.b.22.85%С.18.75%d.15.35%Plastic Inc.'sstock has an estimated beta of 2 with arequired rate of return is 12%. Paper Inc.'s stock has a beta of 1, andthe risk-free rate is 2%. Determine the required rate of return on Paper Inc.'s stock?7.0%а.b. 8.4%c. 10.0%d. 11.5%Company K has a beta of 1.6, while Company L's beta is 0.7. The risk-free rate is 7%, and current market premium is 5%.Currently, the expected rate of inflation built into the risk-free rate rises by 1%, the real risk-free rate remainsconstant, and the required return on the market rises to 14%. There is no change in the betas of both company.When these changes occurs, by how much will the required return on Stock K exceed the required return of StockL?а. 4.20%b. 4.82%С.5.40%d. 5.50%

We need to use CAPM to calculate required rate of return. The equation is Required rate of return…

Answered: Furniture Inc. has a beta coefficient…

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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