Question

Beale Manufacturing Company has a beta of 1.4, and Foley Industries has a beta of 0.70. The required return on an index fund that holds the entire stock market is 11%. 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 4.55%

Beale Manufacturing Company
Expected Return =	Risk free Return + (Market Return - Risk free return)* Beta
Expected Return =	4.5% + (11% - 4.5%) * 1.4
Expected Return =	13.60%
Foley Industries
Expected Return =	Risk free Return + (Market Return - Risk free return)* Beta
Expected Return =	4.5% + (11% - 4.5%) * 0.70
Expected Return =	9.05%
Difference =	13.60% - 9.05%
	4.55%