Question

In: Finance

suppose risk free rate is 5 % , return on market is 11 % , and...

suppose risk free rate is 5 % , return on market is 11 % , and return on stock B is 14 % . a Calculate Stock B's beta, B.marvin has investments with the following characteristics in his protfolio

expect inv amount return Invested
abc 30% 10k
efg 16% 50k
qrp 20% 40k

suppose risk free rate is 5 % , return on market is 11 % , and return on stock B is 14 % . a Calculate Stock B's beta, B.?

if Stock B's beta were 1.5, what would be B's new required rate of return?

Expert Solution

a.

Risk free rate = 5%

Market return = 11%

Risk Premium = 11% - 5%

= 6%

Expected return = 14%

Beta is calculated below using CAPM model:

Expected rate of return = Risk free rate + Risk Premium × Beta

14% = 5% + (6% × beta)

9% = 6% × beta

Beta = 1.50

Beta of company is 1.50.

So, if Beta of cmpany is 1.50 then required rate of return is 14%.

jeff jeffy answered 2 years ago

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