Reference no: EM132485537
Question 1: A stock has a required return of 12%, the risk-free rate is 3.5%,. and the market risk premium is 3%.
Question a. What is the stock's beta? Round your answer to two decimal places.
Question b. If the market risk premium increased to 4%, what would happen to the stock's required rate of return? Assume that the risk-free rate and the beta remain unchanged. Do not round intermediate calculations. Round your answer to two decimal places.
Point I. 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.
Point II. If the stock's beta is less than 1.0r then the change in required rate of return will be greater than the change in the market risk premium.
Point III 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.
Point IV 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. V. 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. Stock's required rate of return will be %.
Question 2: Suppose you held a diversified portfolio consisting of a $7,500 investment in each of 20 different common stocks. The portfolio's beta is 1.55. Now suppose you decided to sell one of the stocks in your portfolio with a beta of 1.0 for $7,500 and use the proceeds to buy another stock with a beta of 1.10. What would your portfolio's new beta be? Do not round intermediate calculations. Round your answer to two decimal places.
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