Stock A's stock has a beta of 1.30, and its required return is 11.75%. Stock B's beta is 0.80. If the risk-free rate is 4.75%, what is the required rate of return on B's stock?

Answer:

9.054

Explanation:

The first step is to calculate the market risk premium for stock A

11.75%= 4.75% + 1.30 × market risk premium

11.75-4.75= 1.30×mrp

7= 1.30 ×mrp

mrp= 7/1.30

= 5.38

Therefore the required rate on stock B can be calculated as follows

4.75+0.80×5.38

= 4.75 + 4.304

= 9.054

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Question 15 options:
True
False

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a. True
b. False

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Actual Results Flexible Budget Variances Flexible Budget Saiesminus-Volume Variances Static Budget
Units sold 495,000 495,000 453,750
Revenues $185,150 $4,400 F (A) $6,160 U (B)
Variable costs (C) $880 U $69,780 $10,300 F $88,080
Fixed costs $36,430 $3,770 F $40,200 0 $40,200
Operating income $78,060 (D) $70,770 (E) $66,630

Required:
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a. $4,140 favorable
b. $14,960 favorable
c. $14,960 unfavorable
d. $7,290 unfavorable

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a. Gear icon
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a. Blogs
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c. Virtual Worlds
d. Social Networking
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f. Photo Sharing
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