MGT201 Solution
Monday, June 21, 2010 Posted In FM , MGT Edit Thisa) What do you require the return on your stock?
Beta = 0.6
Risk free rate = 10%
Risk premium = 5%
Required rate of return =?
rA = rRF + (rM – rRF) βA
= 10% + (5%)*.6
= 13%
b) Comment whether you will still hold the stock, if the market return is 15%?
rM = 15%
rA = rRF + (rM – rRF) βA
= 10% + (15% - 10%).6
= 13%
stock is less risky then market so I will hold the stock
Beta = 0.6
Risk free rate = 10%
Risk premium = 5%
Required rate of return =?
rA = rRF + (rM – rRF) βA
= 10% + (5%)*.6
= 13%
b) Comment whether you will still hold the stock, if the market return is 15%?
rM = 15%
rA = rRF + (rM – rRF) βA
= 10% + (15% - 10%).6
= 13%
stock is less risky then market so I will hold the stock
