Following are the beta coefficients for four stocks that Charlie wants to purcha

Question

Following are the beta coefficients for four stocks that Charlie wants to purchase: Company Beta Ford Motor Company 2.5 General Mills 0.2 Microsoft 1.0 Wells Fargo & Company 1.4 The nominal risk-free rate of return, rRF, is 2 percent, and the market rate risk premium is 7 percent. (a) Compute the required rate of return for each stock. (b) Compute the required rate of return for each stock if the market risk premium is 5 percent rather than 7 percent. (c) Explain why the return on each stock did not change by the same amount

Explanation / Answer

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E(R) = RFR + ?stock(Rmarket

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