Explore BrainMass
Share

Calculating the Beta and Required Rate of Return

This content was STOLEN from BrainMass.com - View the original, and get the already-completed solution here!

You have observed the following returns over time. Assume that the risk free rate is 6% and the market risk premium is 5%.

Year Stock X Stock Y Market
2006 14% 13% 12%
2007 19% 7% 10%
2008 -16% -5% -12%
2009 3% 1% 1%
2010 20% 11% 15%

a. What are the betas for Stocks X and Y?
b. What are the required rates of return on Stocks X and Y?
c. What is the required rate of return on a portfolio consisting of 60% of Stock X and 40% of Stock Y?

© BrainMass Inc. brainmass.com October 25, 2018, 7:50 am ad1c9bdddf
https://brainmass.com/economics/risk-analysis/calculating-beta-required-rate-return-516795

Solution Preview

Please refer attached file for better understanding of formulas in MS Excel.

a. What are the betas for Stocks X and Y?
Beta can be found by using "SLOPE" function in MS Excel.
Beta of stock X=b1=1.35
Beta of stock ...

Solution Summary

Solution depicts the steps to estimate the betas and required rate of returns of the given stocks. Beta for each stock is calculated by using the suitable function in MS Excel.

$2.19
See Also This Related BrainMass Solution

Calculate Stock's Beta: Required Rate of Return & Risk Free Rate

A stock has a required return of 11 percent; the risk free rate is 7 percent; and the market risk premium is 4 percent.

What is the stock's beta?

If the market risk premium increased to 6 percent what would happen to the stock's required rate of return? Assume the risk free rate and the beta remained unchanged.

View Full Posting Details