As an equity analyst you are concerned with what will happen to the required ret

Question

As an equity analyst you are concerned with what will happen to the required return to Universal Toddler Industries's stock as market conditions change. Suppose rRF = 7%, rM = 13%, and bUTI = 2.2.

What is rUTI, the required rate of return on UTI Stock? Round your answer to two decimal places.

  %

Your retirement fund consists of a $7,500 investment in each of 20 different common stocks. The portfolio's beta is 1.55. Now, suppose you sell one of the stocks with a beta of 1.0 for $7,500 and use the proceeds to buy another stock whose beta is 0.95. Calculate your portfolio's new beta. Do not round intermediate calculations. Round your answer to two decimal places.

Explanation / Answer

Required Return= Rf+beta(Rm-Rf)

                                =7%+2.20(13-7)

                             =20.20%

2. Revised Beta=(1.55-1)+.95

=1.50

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