a. Assume that the risk-free rate is 8 percent, the required rate of return on t

Question

a. Assume that the risk-free rate is 8 percent, the required rate of return on the market (or an average-risk stock) is 13 percent, and the required rate of return on Acme Healthcare stock is 15 percent. What is the implied beta coefficient of the stock?

3b. Assume the risk free rate is 4 percent, the required rate of return on the market portfolio is 15 percent, and the reported beta for a medical device manufacturer is 1.7. Calculate the required rate of return on the stock of the medical device manufacturer under the capital asset pricing model

Explanation / Answer

the capital asset pricing model: Rs = Rf + ?(Rm - Rf)

a).15% = 8% + ?(13% - 8%)

? = 1.4

therefore,the implied beta coefficient of the stock is 1.4

b).Rs = 4% + 1.7*(15% - 4%) = 4.19%

therefore, the required rate of return on the stock of the medical device manufacturer is 4.19%

Related Questions

Navigate

• Browse (All)
• Browse A
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.