Adriatic Corporation's stock had a required return of 11.50% last year, when the risk-free rate was 5.50% and the market risk premium was 4.75%. Now suppose there is a shift in investor risk aversion, and the market risk premium increases by 2%. The risk-free rate and Adriatic's beta remain unchanged. What is Adriatic's new required return? (Hint: First calculate the beta then find the required return.)© BrainMass Inc. brainmass.com October 9, 2019, 10:54 pm ad1c9bdddf
Using the CAPM equation
Required return = Rf + (Rm-Rf) beta
From the ...
The solution explains how to calculate the required return given a change in risk aversion.