Subject: Financial strategy & policy 8-5: BETA AND REQUIRED RATE OF RETURN A stock has a required return of 11%, the risk-free rate is 7%, and the market risk premium is 4%. a. What is the stock’s...

Subject: Financial strategy & policy

8-5:
BETA AND REQUIRED RATE OF RETURN A stock has a required return of 11%, the risk-free rate is 7%, and the market risk premium is 4%.
a. What is the stock’s beta?
b. If the market risk premium increased to 6%, what would happen to the stock’s required rate of return? Assume that the risk-free rate and the beta remain unchanged.

8-8:
BETA COEFFICIENT Given the following information, determine the beta coefficient for Stock J that is consistent with equilibrium: ^rJ ¼ 12.5%; rRF ¼ 4.5%; rM ¼ 10.5%.