1 Suppose rRF = 6%, rM = 9%, and rA = 15%.,Calculate Stock A’s beta. Round your answer to two decimal places.,If Stock A’s beta were 2.0, then what would be A’s new required rate of return? Round your answer to two decimal places.,%,2 Historical Returns: Expected and Required Rates of Return,eBook ,,,You have observed the following returns over time:,Year Stock X Stock Y Market,2006 15% 13% 13%,2007 18 5 12,2008 -13 -6 -14,2009 4 2 2,2010 18 9 14,Assume that the risk-free rate is 4% and the market risk premium is 14%,What is the beta of Stock X? Round your answer to two decimal places.,,,What is the beta of Stock Y? Round your answer to two decimal places.,,,What is the required rate of return on Stock X? Round your answer to two decimal places.,%,,What is the required rate of return on Stock Y? Round your answer to two decimal places.,,,What is the required rate of return on a portfolio consisting of 80% of Stock X and 20% of Stock Y? Round your answer to two decimal places.,%,,If Stock X’s expected return is 22%, is Stock X under- or overvalued?,,I. Stock Y is undervalued, because its expected return exceeds its required rate of return.,II. Stock X is undervalued, because its expected return is below its required rate of return.,III. Stock Y is undervalued, because its expected return is below its required rate of return.,IV. Stock X is overvalued, because its expected return exceeds its required rate of return.,V. Stock X is undervalued, because its expected return its exceeds required rate of return.,,3 Suppose you manage a $5.01 million fund that consists of four stocks with the following investments:,Stock Investment Beta,A $320,000 1.50,B 700,000 -0.50,C 1,340,000 1.25,D 2,650,000 0.75,If the market’s required rate of return is 12% and the risk-free rate is 4%, what is the fund’s required rate of return? Round your answer to two decimal place,,4 Assume that you manage a $10.00 million mutual fund that has a beta of 1.05 and a 9.50% required return. The risk-free rate is 4.20%. You now receive another $5.00 million, which you invest in stocks with an average beta of 0.65. What is the required rate of return on the new portfolio? (Hint: You must first find the market risk premium, then find the new portfolio beta.),a. 9.51% ,b. 9.27% ,c. 8.83% ,d. 9.74% ,e. 9.05% ,5 Assume that the risk-free rate is 5% and that the market risk premium is 5%.,What is the required rate of return on a stock with a beta of 0.9? Round your answer to two decimal places.

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