Required rate of return Stock R has a beta of 1, Stock S has a beta of 0.65, the
ID: 2716583 • Letter: R
Question
Required rate of return
Stock R has a beta of 1, Stock S has a beta of 0.65, the expected rate of return on an average stock is 13%, and the risk-free rate of return is 5%. By how much does the required return on the riskier stock exceed the required return on the less risky stock? Round your answer to two decimal places.
%
Required rate of return
Stock R has a beta of 1, Stock S has a beta of 0.65, the expected rate of return on an average stock is 13%, and the risk-free rate of return is 5%. By how much does the required return on the riskier stock exceed the required return on the less risky stock? Round your answer to two decimal places.
%
Explanation / Answer
=0.08 =mkt risk premium
how much does the required return on the riskier stock exceed the required return on the less risky stock
E(r) = RFR + ß(Rmkt - RFR), 0.13 = 0.05 + 1.0(mkt risk premium)=0.08 =mkt risk premium
Stock R E(rS) = 0.05 + 1(0.08) =13% Stock S E(rS) = 0.05 + 0.65(0.06) =10.2%Related Questions
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