Question Details

What is the stock's new required rate of return 


1.	Kollo Enterprises has a beta of 1.10, the real risk-free rate is 2.00%, investors expect a 3.00% future inflation rate, and the market risk premium is 4.70%.  What is Kollo's required rate of return?

a.	9.43%
b.	9.67%
c.	9.92%
d.	10.17%
e.	10.42%
	
2.	Linke Motors has a beta of 1.30, the T-bill rate is 3.00%, and the T-bond rate is 6.5%.  The annual return on the stock market during the past 3 years was 15.00%, but investors expect the annual future stock market return to be 13.00%.  Based on the SML, what is the firm's required return?

a.	13.51%
b.	13.86%
c.	14.21%
d.	14.58%
e.	14.95%
	
3.	Nagel Equipment has a beta of 0.88 and an expected dividend growth rate of 4.00% per year.  The T-bill rate is 4.00%, and the T-bond rate is 5.25%.  The annual return on the stock market during the past 4 years was 10.25%.  Investors expect the average annual future return on the market to be 12.50%.  Using the SML, what is the firm's required rate of return?

a.	11.34%
b.	11.63%
c.	11.92%
d.	12.22%
e.	12.52%
	
4.	Consider the following information and then calculate the required rate of return for the Global Investment Fund, which holds 4 stocks.  The market- required rate of return is 13.25%, the risk-free rate is 7.00%, and the Fund's assets are as follows:

	Stock	Investment	Beta
	A	$200,000	1.50
	B	$300,000	-0.50
	C	$500,000	1.25
	D	$1,000,000	0.75

a.	9.58%
b.	10.09%
c.	10.62%
d.	11.18%
e.	11.77%
	
5.	Data for Dana Industries is shown below.  Now Dana acquires some risky assets that cause its beta to increase by 30%.  In addition, expected inflation increases by 2.00%.  What is the stock's new required rate of return?

	Initial beta	1.00
	Initial required return (rs)	10.20%
	Market risk premium, RPM	6.00%
	Percentage increase in beta	30.00%
	Increase in inflation premium, IP	2.00%

a.	14.00%
b.	14.70%
c.	15.44%
d.	16.21%
e.	17.02%
6.	Mulherin's stock has a beta of 1.23, its required return is 11.75%, and the risk-free rate is 4.30%.  What is the required rate of return on the market?  (Hint:  First find the market risk premium.)

a.	10.36%
b.	10.62%
c.	10.88%
d.	11.15%
e.	11.43%



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