Problem 12-13 Stock Y has a beta of 1.01 and an expected return of 8.38 percent.
ID: 2711926 • Letter: P
Question
Problem 12-13
Stock Y has a beta of 1.01 and an expected return of 8.38 percent. Stock Z has a beta of .70 and an expected return of 7 percent. What would the risk-free rate have to be for the two stocks to be correctly priced relative to each other? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places. Omit the "%" sign in your response.)
Stock Y has a beta of 1.01 and an expected return of 8.38 percent. Stock Z has a beta of .70 and an expected return of 7 percent. What would the risk-free rate have to be for the two stocks to be correctly priced relative to each other? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places. Omit the "%" sign in your response.)
Explanation / Answer
Risk Rate Return of Stock Y 8% Risk Rate Return of Stock Z 5% Risk free rate of return, for the two stocks to be relatively correctly priced to each other would be the average of these two amounts Hence, the risk free rate of return would be 7%