Answered

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company a has a beta of 0.70, and company b's beta is 1.20. the required return on the stock market is 11%, 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, and then find the required returns on the stocks.

Sagot :

Option E, or 3.38%, is the difference between the required rates of return for A and B.

The relationship between systematic risk and expected return for assets, particularly stocks, is known as the Capital Asset Pricing Model (CAPM). The CAPM is frequently used in finance to value risky securities and calculate expected returns for assets based on their risk and cost of capital.

The beta for Company A is 0.70.

The beta for Company B is 1.20.

The required stock market return is 11.00%,

4.25% is the risk-free rate.

A risk premium of 11% minus 4.25% equals 6.75%.

You can input the returns of 8.975% for A and 12.35% for B to find them in the CAPM.

What is the Rate of Return?

The net gain or loss on an investment over a predetermined period of time is known as a rate of return. The initial cost of the investment is used to calculate the rate of return.

Thus, 3.38% is the answer

For more information on the rate of return, refer to the given link:

https://brainly.com/question/24232401

#SPJ4

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