Problem: Beta and required rate of return
- A stock has a required return of 10%; the risk-free rate is 4.5%; and the market risk premium is 3%.
- What is the stock's beta? Round your answer to two decimal places.
- If the market risk premium increased to 7%, what would happen to the stock's required rate of return? Assume that the risk-free rate and the beta remain unchanged.
- If the stock's beta is greater than 1.0, then the change in required rate of return will be less than the change in the market risk premium.
- If the stock's beta is equal to 1.0, then the change in required rate of return will be greater than the change in the market risk premium.
- If the stock's beta is equal to 1.0, then the change in required rate of return will be less than the change in the market risk premium.
- If the stock's beta is greater than 1.0, then the change in required rate of return will be greater than the change in the market risk premium.
- If the stock's beta is less than 1.0, then the change in required rate of return will be greater than the change in the market risk premium.
- New stock's required rate of return will be %. Round your answer to two decimal places.