X)·MindTap Cengage Le \\ G Finance question I chec Q Risk and Rates of Retur × ×
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X)·MindTap Cengage Le G Finance question I chec Q Risk and Rates of Retur × × > g Ong.cengage.com/static/nb/ui/index.html?nbld-607789&nbNodeld;=222574587&deploymentld-551; 651206000478223875429995&elSBN-9781305635975;#!&parentld.; a The SML line can change due to expected inflation and risk aversion. If inflation changes, then the SML plotted on a graph will shift up or down parallel to the old SML. If risk aversion chan then the SML plotted on a graph will rotate up or down becoming more or less steep if investors become more or less risk averse. A firm can influence market risk (hence its beta coefficien through changes in the composition of its assets and through changes in the amount of debt it uses Quantitative Problem: You are given the following information for Wine and Cork Enterprises (WCE) rR= 2%; rM = 896; RPM = 696, and beta-1 What is WCE's required rate of return? Round your answer to 2 decimal places. Do not round intermediate calculations. If inflation increases by 1% but there is no change in investors' risk aversion, what is WCE's required rate of return now? Round your answer to two decimal places. Do not round intermedi calculations Assume now that there is no change in inflation, but risk aversion increases by 2%, what is WCE's required rate of return now? Round your answer to two decimal places. Do not round intermediate calculations If inflation increases by 1% and risk aversion increases by 296, what is wCE's required rate of return now? Round your answer to two decimal places. Do not round intermediate calculation Icon Key Risk and Rates of Return: Security Market L.ine Question 3 c Save Submit Assignment for Gra 5:58 PM Type here to search 11/4/2017Explanation / Answer
a.
required rate of return=2%+1*6%=8.00%
b.
required rate of return=(2%+1%)+1*6%=9.00%
c.
required rate of return=2%+1*(6%+2%)=10.00%
d.
required rate of return=(2%+1%)+1*(6%+2%)=11.00%
the above is the answer
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