Stock R has a beta of 2.0, Stock S has a beta of 0.85, the required...

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business finance

Answer 1

Answer #1

The stock with a higher beta is said to be the riskier stock. In this case , since Stock R has a higher beta than that of Stock S, it is riskier.

Required return on stock R = risk free rate + (market risk return - risk free rate) * Beta

= 3% + ( 14%-3%)*2

= 25%

Required return on stock S = risk free rate + (market risk return - risk free rate) * Beta

= 3% + ( 14%-3%)*0.85

= 12.35%

Difference between the returns = 25% - 12.35%

= 12.65%

Answer : 12.65%

Answer 2

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