Question

Required rate of return

Stock R has a beta of 1.2, Stock S has a beta of 0.8, the required return on an average stock is 11%, and the risk-free rate of return is 5%. By how much does the required return on the riskier stock exceed the required return on the less risky stock? Round your answer to two decimal places.

________%

Answer 1

Ans 2.40%

a)	Required Return =	Risk free Return + (Market Return - Risk free return)* Beta
	Required Return =	5% +(11%- 5%) * 1.2
	Required Return =	12.20%
b)	Required Return =	Risk free Return + (Market Return - Risk free return)* Beta
	Required Return =	5% +(11%- 5%) * 0.8
	Required Return =	9.80%
	Difference =	12.20% - 9.8%
		2.40%