Question

(6)
Given R, = 8%, Rm = 15% and RA = 18%.
(1) Find out the Beta of Stock A.
(ii) What is the Stock A's return if its Beta changes to 0.75?​

Answer 1

Answer:

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Answer 2

Given:

R = 8%

Rm = 15%

RA = 18%

To find:

(i) Find out the Beta of Stock A:

As per CAPM method Stock A

Required return = R + Beta (Rm - R)

RA = R+ Beta (Rm -R)

18% = 8% + Beta (15% -8%)

18% -8% = Beta (7%)

10% = Beta (7%)

Beta = 10/7

Beta = 1.4286

(ii) What is the Stock A's return if its Beta changes to 0.75?

RA = R + Beta (Rm -R)

RA = 8% +0.75 (7%)

RA = 8% + 5.25%

RA = 13.25%

Solution:

(i) the Beta of Stock A is 1.4286

(ii)the Stock A's return if its Beta changes to 0.75 RA = 13.25%