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problem1: Parr Paper's stock has a beta of 1.40, and its required return is 13 percent. Clover Dairy's stock has a beta of .80. If the risk-free rate is 4 percent, find out the required rate of return on Clover's stock? (Suggestion: First find the market risk premium.)

[A] 8.99%

[B] 9.14%

[C] 8.55%

[D] 8.71%

[E] 9.33%

problem2: Stock A has a beta of 0.8 and Stock B has a beta of 1.2. Fifty percent of Portfolio P is invested in Stock A and fifty percent is invested in Stock B. If the market risk premium (rM  rRF) were to increase but the risk-free rate (rRF) remained constant, which of the following would occur?

[A] The required return will reduces by the same amount for both Stock A and Stock B.

[B] The required return will increase for both stocks but the increase will be greater for Stock B than for Stock A. 2

[C] The required return will increase for Stock A but will decrease for Stock B.

[D] The required return will increase for Stock B but will decrease for Stock A.

[E] The required return on Portfolio P will remain unchanged.

problem3: Other things held constant, if the expected inflation rate reduces and investors also become more risk averse, the Security Market Line would shift

[A] Up and keep the same slope.

[B] Down and keep the same slope.

[C] Down and have a less steep slope.

[D] Up and have a less steep slope.

[E] Down and have a steeper slope.

Basic Finance, Finance

  • Category:- Basic Finance
  • Reference No.:- M921053

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