Yahoo Finance reported the following market betas for the stocks of selected health insurers: Company Beta United Health Group 0.7 Humana 1.16 Aetna 0.63 Cigna 0.71 Assume that the risk-free rate, RF, and required rate of return on the market, R(Rm), are 2.0 percent and 8.5 percent, respectively. (a) What are the required rates of return on the four stocks? (b) Which of the stocks is riskiest for investors? Explain your answer.
Yahoo Finance reported the following market betas for the stocks of selected health insurers: Company Beta United Health Group 0.7 Humana 1.16 Aetna 0.63 Cigna 0.71 Assume that the risk-free rate, RF, and required rate of return on the market, R(Rm), are 2.0 percent and 8.5 percent, respectively. (a) What are the required rates of return on the four stocks? (b) Which of the stocks is riskiest for investors? Explain your answer.
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:**Market Betas for Selected Health Insurers**
Yahoo Finance reported the following market betas for the stocks of selected health insurers:
| Company | Beta |
|------------------------|------|
| United Health Group | 0.7 |
| Humana | 1.16 |
| Aetna | 0.63 |
| Cigna | 0.71 |
Assume that the risk-free rate (\( R_F \)) and the required rate of return on the market (\( R_M \)) are 2.0 percent and 8.5 percent, respectively.
**Questions:**
(a) What are the required rates of return on the four stocks?
(b) Which of the stocks is riskiest for investors? Explain your answer.
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