Question

What is the expected return of Seaside Corp if the risk free rate is 1.85%, the stock's beta is 1.41, and the market premium is 6.4%?

What is the expected market return if Seaside's expected return is instead 12.6%?

How does Seaside's beta change if the expected return is 12.6%, but the market premium remains at 6.4%?

Answer 1

1.
required return=risk free rate+beta*market risk premium
=1.85%+1.41*6.4%
=10.87%

2.
=(required return-risk free rate)/beta+risk free rate
=(12.6%-1.85%)/1.41+1.85%
=9.47%

3.
=(required return-risk free rate)/market risk premium
=(12.6%-1.85%)/6.4%
=1.68