Question Details

 returns on United Fund 






 .	Consider the information below for Postman Builders Inc.  Suppose that the expected inflation rate and thus the inflation premium increase by 2.0 percentage points, and Postman acquires risky assets that increase its beta by the indicated percentage.  What is the firm's new required rate of return?

Beta:	1.50
Required return (rs)	10.20%
RPM:	6.00%
Percentage increase in beta:	20%

a.	14.00%
b.	14.70%
c.	15.44%
d.	16.21%
e.	17.02%


 
	
 .	Assume that the market is in equilibrium and that stock betas can be estimated with historical data. The returns on the market, the returns on United Fund (UF), the risk-free rate, and the required return on the United Fund are shown below. Based on this information, what is the required return on the market, rM?

Year	Market		UF	
2008	-9%	-14%
2009	11%	16%
2010	15%	22%
2011	5%	7%
2012	-1%	-2%

rRF:  7.00%; rUnited:  	15.00%

a.	10.57%
b.	11.13%
c.	11.72%
d.	12.33%
e.	12.95%

	MEDIUM
 .	You are given the following returns on "the market" and Stock F during the last three years.  We could calculate beta using data for Years 1 and 2 and then, after Year 3, calculate a new beta for Years 2 and 3.  How different are those two betas, i.e., what's the value of beta 2 - beta 1?  (Hint:  You can find betas using the Rise-Over-Run method, or using your calculator's regression function.)

Year	Market	Stock F
	1	6.10%	6.50%
	2	12.90%	-3.70%
	3	16.20%	21.71%

a.	7.89
b.	8.30
c.	8.74
d.	9.20
e.	9.66





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