Ask Question
BusinessBusiness
5 December, 02:10

Stock A's stock has a beta of 1.30, and its required return is 12.00%. Stock B's beta is 0.80. If the risk-free rate is 4.75%, what is the required rate of return on B's stock? (Hint: First find the market risk premium.) a. 8.76%b. 8.98%c. 9.21%d. 9.44%e. 9.68%

+4
Answers (1)
  1. 5 December, 04:26
    0
    c. 9.21%

    Explanation:

    In this question, we apply the Capital Asset Pricing Model (CAPM) formula which is shown below

    Expected rate of return = Risk-free rate of return + Beta * (Market rate of return - Risk-free rate of return)

    For stock A

    12% = 4.75% + 1.30 * market risk premium

    12% - 4.75% = 1.30 * market risk premium

    7.25% = 1.30 * market risk premium

    So, the market risk premium = 5.58%

    For Stock B, required rate of return would be

    = 4.75% + 0.80 * 5.58%

    = 4.75% + 4.464%

    = 9.214%
Know the Answer?
Not Sure About the Answer?
Find an answer to your question ✅ “Stock A's stock has a beta of 1.30, and its required return is 12.00%. Stock B's beta is 0.80. If the risk-free rate is 4.75%, what is the ...” in 📘 Business if you're in doubt about the correctness of the answers or there's no answer, then try to use the smart search and find answers to the similar questions.
Search for Other Answers
You Might be Interested in
Your firm is considering opening a branch office in Kyle. The office would cost $485,000 to build the office.
Answers (1)
What is the struggle among producers for consumer dollars called?
Answers (1)
Are there benefits for law being vague and variable?
Answers (1)
During 20x8, a firm discontinued a component qualifying for separate disclosure within the income statement. The disposal was completed before the end of 20x8 and resulted in a $300 disposal gain.
Answers (1)
Baby boomers are less likely to associate retirement with "the beginning of the end" and see it instead as a new chapter in their lives with new activities, interests, careers, or even relationships. a. True. b. False.
Answers (1)
New Questions in Business
Buckman Company uses the weighted average method for process costing. The cost per equivalent unit for direct materials is $5.00. The cost per equivalent unit for conversion costs is $3.00. The company completed and transferred out is 40,000 units.
Answers (1)
Which of the following transactions would be recorded if using the accrual basis of accounting but not if using the cash basis of accounting? A. Paying off loans B. Purchasing inventory on account C. Collecting customer payments D. Borrowing money
Answers (2)
Under ASC 606, the transaction price generally should be adjusted for the effect of the time value of money when A. A royalty contract with a distribution in which the consideration to be received depends on sales to end customers. B.
Answers (1)
ALT Inc. conducts periodic reviews of the distribution of pay and the favorable outcomes granted to employees, such as promotions and increased office space.
Answers (1)
If total liabilities increased by $6,000 and the assets increased by $8,000 during the accounting period, what is the change in the owner's equity amount? A. Decrease of $2,000 B. Decrease of $2,000 C. Increase of $10,000 D. Decrease of $10,000
Answers (1)
Home » Business » Stock A's stock has a beta of 1.30, and its required return is 12.00%. Stock B's beta is 0.80. If the risk-free rate is 4.75%, what is the required rate of return on B's stock? (Hint: First find the market risk premium.) a. 8.76%b. 8.98%c. 9.21%d. 9.
Sign Up Forgot Password?