401K Financial Planning

Michael G asked:

1. Assume that the risk-free rate designated by r RF = 5%, the market risk premium designated by r M = 10%, and the expected rate of return for stock A is designated by r A = 12%,

a. What is the beta for Stock A?

b. If Stock A’s beta was 2.0, what would be A’s new required rate of return?

2. Assume that the risk-free rate is 5% and the market risk premium is 6%. What is the expected return for the overall stock market? What is the required rate of return for a stock that has a beta of 1.2%

3. Assume that the risk-free rate is 6% and the expected return on the market is 13%. What is the required rate of return on a stock that has a beta of 0.7%?

4. An individual has $35,000 invested in a stock which has a beta of 0.8 and $40,000 invested in a stock with a beta of 1.4. If these are the only two investments in her portfolio, what is the beta of her portfolio?


Question posted courtesy of: Shane