Given the following information, determine the beta coefficient for Stock J that

Question

Given the following information, determine the beta coefficient for Stock J that is consistent with equilibrium: rJ = 14.5%; rRF = 6.75%; rM = 8%. Round your answer to two decimal places.

Bradford Manufacturing Company has a beta of 1.8, while Farley Industries has a beta of 0.55. The required return on an index fund that holds the entire stock market is 12%. The risk-free rate of interest is 5%. By how much does Bradford's required return exceed Farley's required return? Round your answer to two decimal places.

Explanation / Answer

Answer:

(1) As per CAPM formula:

Expected return (r) = Risk free rate (rRF) + Beta * [Market rate (rM)

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