What would happen to the stock required rate of return

Assignment Help Financial Management

Reference no: EM131997763

A stock has a required return of 15%; the risk-free rate is 4%; and the market risk premium is 4%.

a. What is the stock's beta? Round your answer to two decimal places.

b. If the market risk premium increased to 7%, what would happen to the stock's required rate of return? Assume that the risk-free rate and the beta remain unchanged.

(1) If the stock's beta is less than 1.0, then the change in required rate of return will be greater than the change in the market risk premium.

(2) If the stock's beta is greater than 1.0, then the change in required rate of return will be less than the change in the market risk premium.

(3) If the stock's beta is equal to 1.0, then the change in required rate of return will be greater than the change in the market risk premium.

(4) If the stock's beta is equal to 1.0, then the change in required rate of return will be less than the change in the market risk premium.

(5) If the stock's beta is greater than 1.0, then the change in required rate of return will be greater than the change in the market risk premium.

New stock's required rate of return will be_____ %. Round your answer to two decimal places.

Reference no: EM131997763

Questions Cloud

What is the current price of the two-year treasury strip : What is the current price of the two-year Treasury STRIP? What is the expected price of the two-year Treasury STRIP one year from today?

What will be effect of an increase in interest rate : What will be the effect of an increase in interest rate of 5% on the net worth of the bank? ?

Company announced first dividend of per share : A company announced its first dividend of $3 per share and the company is expected to grow 30% each year for four years.

Describe your arbitrage strategy : The price of the stock is X. As X runs from 65 to 75, carefully describe your arbitrage strategy.

What would happen to the stock required rate of return : If the market risk premium increased to 7%, what would happen to the stock's required rate of return?

Firm pays dividend in one year to justify current? price : What price must you expect Evco stock to sell for immediately after the firm pays the dividend in one year to justify its current? price?

What is the fund required rate of return : If the market's required rate of return is 12% and the risk-free rate is 7%, what is the fund's required rate of return?

Floating rate at libor-they would like floating rate : Company A can borrow 6 months floating rate at LIBOR + 0.50%. Company A can also borrow 5 year fixed rate at 10.75%. They would like a floating rate.

What each mean-would look like for my project : I have to do project on navient corporations and involve this components. what each mean/would look like for my project?

User Account

All Pages