Expected and required rates of return Assume that the risk-free rate is 6% and t

Question

Expected and required rates of return Assume that the risk-free rate is 6% and the market risk premium is 6%. What is the expected return for the overall stock market? Round your answer to two decimal places._______% What is the required rate of return on a stock with a beta of 1.9? Round your answer to two decimal places.________% Beta and required rate of return A stock has a required return of 11%; the risk-free rate is 2.5%; and the market risk premium is 6%. What is the stock's beta? Round your answer to two decimal places. If the market risk premium increased to 8%, what would happen to the stock's required rate of return? Assume the risk-free rate and the beta remain unchanged. 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. 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. 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. 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. 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. New stock's required rate of return will be______%. Round your answer to two decimal places.

Explanation / Answer

As per Chegg's guidelines, I am giving the answers of all parts of Problem 8-4:

Answer to Problem 8-4

Part a:

Risk Free Rate= 6%

Market Risk Premium=6%

Expected Return on market=Risk Free Return+(Market Risk Premium)Beta

Expected Return on market=0.06+(.06)1

Expected Return on market=0.12

Expected Return on market=12%

Part b:

Risk Free Rate= 6%

Market Risk Premium=6%

Beta=1.9

Required rate of return =Risk Free Return+ (Market Risk Premium)Beta

Required rate of return =0.06+(0.06)1.9

Required rate of return =0.174

Required rate of return =17.4%

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