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 the risk-free rate and the beta remain unchanged.
The solution is a step-by-step calculation of the stock's beta and the stock's required rate of return. MS Word document contains 130 words with detailed explanation of the effect of market risk premium on a stock's required rate of return. This step-by-step calculation provides students with a clear perspective of a stock's required rate of return.