Ba 350 Week 7 Assignment

BA 350 WEEK 7 ASSIGNMENT

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BA 350 Week 7 Assignment,

6-2 Required Rate of Return

Assume that the risk-free rate is 6% and that the expected return on the market is13%. What is the required rate of return on a stock that has a beta of 0.7?

ri = rRF + (Rm – rRF)bi

Where:

Bi = Beta

rRF = risk-free rate

rM = market risk premium

ri = required rate of return

ri = 6% + (13%-6%)0.7

ri = 6% + 4.9%

ri = 10.9%

6-6 Required Rate of Return

Suppose rRF = 5%, rM = 10%, and rA = 12%.

a. Calculate Stock A’s beta.

b. If Stock A’s beta were 2.0, then what would be A’s new required rate of return?

a.

rA = rRF + (rM – rRF)bA

12% = 5% + (10% – 5%)bA

BA 350 Week 7 Assignment,

6-2 Required Rate of Return

Assume that the risk-free rate is 6% and that the expected return on the market is13%. What is the required rate of return on a stock that has a beta of 0.7?

ri = rRF + (Rm – rRF)bi

Where:

Bi = Beta

rRF = risk-free rate

rM = market risk premium

ri = required rate of return

ri = 6% + (13%-6%)0.7

ri = 6% + 4.9%

ri = 10.9%

6-6 Required Rate of Return

Suppose rRF = 5%, rM = 10%, and rA = 12%.

a. Calculate Stock A’s beta.

b. If Stock A’s beta were 2.0, then what would be A’s new required rate of return?

a.

rA = rRF + (rM – rRF)bA

12% = 5% + (10% – 5%)bA

,