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    Difference in Required Returns

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    CAPM and Portfolio Return - HR Industries (HRI) has a beta of 1.8. While LR Industries' (LRI) beta is 0.6. The risk free rate is 6 percent, and the required rate of return on an average stock is 13 percent. Now the expected rate of inflation built into rRF falls by 1.5 percentage points, the real risk-free rate remains constant, the required return on the market falls to 10.5 percent, and all betas remain constant. After all of these changes, what will be the difference in the required returns for HRI and LRI?

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    This solution provides detailed calculations for finding the difference in required returns.