HR Industries (HRI) has a beta of 1.6; LR Industries’s(LRI) beta is 0.8. The risk-free rate is 6%, and the required rate of return on an averagestock is 13%. The expected rate of inflation built into rRF falls by 1.5 percentage points, thereal risk-free rate remains constant, the required return on the market falls to 10.5%, and allbetas remain constant. After all of these changes, what will be the difference in the requiredreturns for HRI and LRI?
HR Industries (HRI) has a beta of 1.6; LR Industries’s(LRI) beta is 0.8. The risk-free rate is 6%, and the required rate of return on an averagestock is 13%. The expected rate of inflation built into rRF falls by 1.5 percentage points, thereal risk-free rate remains constant, the required return on the market falls to 10.5%, and allbetas remain constant. After all of these changes, what will be the difference in the requiredreturns for HRI and LRI?
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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HR Industries (HRI) has a beta of 1.6; LR Industries’s
(LRI) beta is 0.8. The risk-free rate is 6%, and the required
stock is 13%. The expected rate of inflation built into rRF falls by 1.5 percentage points, the
real risk-free rate remains constant, the required return on the market falls to 10.5%, and all
betas remain constant. After all of these changes, what will be the difference in the required
returns for HRI and LRI?
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