Question

Partridge Pllastic's stock has an estimated beta of 1.4, and its
required return is 13%. Cleaver Motors' stock has a beta of 1.2. If
the risk-free rate is 6%, what is the required return on Cleaver
Motors' stock?

Answer #1

Using Partridge Pllastic's stock requied return we can find market risk premium |

Required rate of return is = Risk free rate of return+(Beta*Market risk premium) |

0.13=0.06+(1.40*Market risk premium) |

Market risk premium is = (0.13-0.06)/1.40 |

Market risk premium is = 5.00% |

Required return on Cleaver Motors' stock = Risk free rate of return+(Beta*Market risk premium) |

Required return on Cleaver Motors' stock = 6%+(1.20*5%) |

Required return on Cleaver
Motors' stock = 12% |

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Round your answer to two decimal places.

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required rate of return of 14%. The equity risk premium is
currently 5%. If the inflation premium increases by 1.0%, and
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Select one:
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c. 22.80%
d. 15.25%
e. 17.00%

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What is the stock's beta? Round your answer to two decimal
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If the market risk premium increased to 10%, what would happen
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and the beta remain unchanged.
New stock's required rate of return will be %. Round
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First find the market risk premium.)
Select the correct answer.
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Required Rate of Return
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Historical Returns: Expected and Required Rates of Return
You have observed the following returns over time:
Year
Stock X
Stock...

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