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Sagot :
Answer: See explanation
Explanation:
1. Based on the information given, Stock A's beta will be calculated below using the formula:
Required return = risk-free rate + Beta × (market rate- risk-free rate )
We then input in the values given into the formula which will be:
12 = 4 + Beta × (9-4)
Beta = (12-4) / (9-4)
Beta = 8/5
Beta = 1.6
Therefore, stock A beta = 1.6
2. If Stock A's beta were 1.9, then what would be A's new required rate of return?
This will be:
= 4 + [1.9 × (9-4)]
= 4 + (1.9 × 5)
= 4 + 9.5
= 13.5%
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