Ο A stock has a required return of 16%, the risk-free rate is 5.5%, and the market risk premium is 4%. a. What is the stock's beta? Round your answer to two decimal places. b. If the market risk premium increased to 7%, what would happen to the stock's required rate of return? Assume that the risk-free rate and the beta remain unchanged. Do not round intermediate calculations. Round your answer to two decimal places. I. If the stock's beta is greater than 1.0, then the change in required rate of return will be greater than the change in the market risk premium. II. If the stock's beta is less than 1.0, then the change in required rate of return will be greater than the change in the market risk premium. III. If the stock's beta is greater than 1.0, then the change in required rate of return will be less than the change in the market risk premium. IV. If the stock's beta is equal to 1.0, then the change in required rate of return will be greater than the change in the market risk premium. V. If the stock's beta is equal to 1.0, then the change in required rate of return will be less than the change in the market risk premium. -Select- ◇ Stock's required rate of return will be %.
Ο A stock has a required return of 16%, the risk-free rate is 5.5%, and the market risk premium is 4%. a. What is the stock's beta? Round your answer to two decimal places. b. If the market risk premium increased to 7%, what would happen to the stock's required rate of return? Assume that the risk-free rate and the beta remain unchanged. Do not round intermediate calculations. Round your answer to two decimal places. I. If the stock's beta is greater than 1.0, then the change in required rate of return will be greater than the change in the market risk premium. II. If the stock's beta is less than 1.0, then the change in required rate of return will be greater than the change in the market risk premium. III. If the stock's beta is greater than 1.0, then the change in required rate of return will be less than the change in the market risk premium. IV. If the stock's beta is equal to 1.0, then the change in required rate of return will be greater than the change in the market risk premium. V. If the stock's beta is equal to 1.0, then the change in required rate of return will be less than the change in the market risk premium. -Select- ◇ Stock's required rate of return will be %.
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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Transcribed Image Text:Ο
A stock has a required return of 16%, the risk-free
rate is 5.5%, and the market risk premium is 4%.
a. What is the stock's beta? Round your answer to
two decimal places.
b. If the market risk premium increased to 7%, what
would happen to the stock's required rate of
return? Assume that the risk-free rate and the
beta remain unchanged. Do not round
intermediate calculations. Round your answer to
two decimal places.
I. If the stock's beta is greater than 1.0, then the
change in required rate of return will be greater
than the change in the market risk premium.
II. If the stock's beta is less than 1.0, then the
change in required rate of return will be greater
than the change in the market risk premium.
III. If the stock's beta is greater than 1.0, then the
change in required rate of return will be less
than the change in the market risk premium.
IV. If the stock's beta is equal to 1.0, then the
change in required rate of return will be greater
than the change in the market risk premium.
V. If the stock's beta is equal to 1.0, then the
change in required rate of return will be less
than the change in the market risk premium.
-Select- ◇
Stock's required rate of return will be
%.
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