Question Details

Mikkelson Corporation's stock had a required return 



1.	Tom Noel holds the following portfolio:

	Stock	Investment	Beta
	A	$150,000	1.40
	B	50,000	0.80
	C	100,000	1.00
	D	  75,000	1.20
	Total	$375,000

Tom plans to sell Stock A and replace it with Stock E, which has a beta of 0.75.  By how much will the portfolio beta change?

a.	-0.190
b.	-0.211
c.	-0.234
d.	-0.260
e.	-0.286
	
2.	You hold a diversified $100,000 portfolio consisting of 20 stocks with $5,000 invested in each.  The portfolio's beta is 1.12.  You plan to sell a stock with b = 0.90 and use the proceeds to buy a new stock with b = 1.80.  What will the portfolio's new beta be?

a.	1.286
b.	1.255
c.	1.224
d.	1.194
e.	1.165
	
3.	Mikkelson Corporation's stock had a required return of 11.75% last year, when the risk-free rate was 5.50% and the market risk premium was 4.75%.  Then an increase in investor risk aversion caused the market risk premium to rise by 2%.  The risk-free rate and the firm's beta remain unchanged.  What is the company's new required rate of return?  (Hint: First calculate the beta, then find the required return.)

a.	14.38%
b.	14.74%
c.	15.11%
d.	15.49%
e.	15.87%
	4.	Company A has a beta of 0.70, while Company B's beta is 1.20.  The required return on the stock market is 11.00%, and the risk-free rate is 4.25%.  What is the difference between A's and B's required rates of return?  (Hint: First find the market risk premium, then find the required returns on the stocks.)

a.	2.75%
b.	2.89%
c.	3.05%
d.	3.21%
e.	3.38%
	
5.	Stock A's stock has a beta of 1.30, and its required return is 12.00%.  Stock B's beta is 0.80.  If the risk-free rate is 4.75%, what is the required rate of return on B's stock?  (Hint:  First find the market risk premium.)

a.	8.76%
b.	8.98%
c.	9.21%
d.	9.44%
e.	9.68%


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