Question

Beale Manufacturing Company has a beta of 1.3, and Foley Industries has a beta of 0.30. The required return on an index fund that holds the entire stock market is 12%. The risk-free rate of interest is 4.5%. By how much does Beale's required return exceed Foley's required return? Do not round intermediate calculations. Round your answer to two decimal places.

  %

Answer 1

Ans 7.50%

Beale Manufacturing Company
Required Return =	Risk free Return + (Market Return - Risk free return)* Beta
Required Return =	4.5% + (12% - 4.5%)*1.3
Required Return =	14.25%
Foley Industries
Required Return =	Risk free Return + (Market Return - Risk free return)* Beta
Required Return =	4.5% + (12% - 4.5%)*0.30
Required Return =	6.75%
Difference =	14.25% - 6.75%
	7.50%