Purchase Solution

Expected Rate of Return

Not what you're looking for?

Ask Custom Question

Shady Dealings Co. has a beta of 0.7 and a required rate of return of 15%. The market risk premium is currently 5%. If we expect the inflation premium to increase by 2% and Shady Dealings to acquire assets which will increase its beta to 1.05, what will be Shady Dealings' new required rate of return?

a) 13.5%
b) 22.8%
c) 18.75%
d) 15.25%
e) 17.0%

Purchase this Solution

Solution Summary

The solution shows in a very easy to understand way the steps required to calculate expected return and beta of a portfolio of stocks. The steps are standard. However, the OTA does a great job of explaining the concepts and steps. The solution can be very easily understood by anyone who has some basic knowledge.

Solution Preview

First, find the risk free rate
Let Er = return on assets
Rf = risk free rate
Rm = market return
B = beta

Er = Rf + B (Rm - Rf) * we are ...

Purchase this Solution

Free BrainMass Quizzes
Economic Issues and Concepts

This quiz provides a review of the basic microeconomic concepts. Students can test their understanding of major economic issues.

Basics of Economics

Quiz will help you to review some basics of microeconomics and macroeconomics which are often not understood.

Economics, Basic Concepts, Demand-Supply-Equilibrium

The quiz tests the basic concepts of demand, supply, and equilibrium in a free market.

Elementary Microeconomics

This quiz reviews the basic concept of supply and demand analysis.

Pricing Strategies

Discussion about various pricing techniques of profit-seeking firms.