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Calculate stocks required rates of return

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Assume that the risk-free rate of return is 1.9%, the current market risk premium is 8%, and the beta of stock A is 1.35 while the beta of stock B is 0.72.

a. Calculate both stocks' required rates of return.

b. What would be the return on an "average" stock?

c. Assume that the economy worsens and that investors correspondingly revise their attitudes towards stocks. Would this change be better reflected in a shift of the market risk premium to 6.5% or 9.5%

d. Based on your answer to c, what would be the new require return of stock A and stock B?

Reference no: EM132804269

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