Purchase Solution

Required Rate of return between planes

Not what you're looking for?

Ask Custom Question

Company Alpha has a beta of 1.6, while Company Omega's beta is 0.7. The risk-free rate is 7%, and the required rate of return on the average stock is 12%. Now the expected rate of inflation built into krf rises by one percentage point, the real risk-free rate remains constant, the required rate on the market increases to 14%, and betas remain constant. After all of these changes have been reflected in the data, calculate by how much the required rate of return on Stock Alpha will exceed that on Stock Omega.
a. 3.75%

b. 4.20%

c. 4.82%

d. 5.40%

e. 5.75%

Purchase this Solution

Solution Summary

The expert examines the required rate of return between planes.

Solution Preview

Reqd ROR = Risk free rate + beta(market rate - risk free rate)

Also Nominal Risk free rate = risk free rate * Inflation rate premium

Or ...

Solution provided by:
Education
  • BE, Bangalore University, India
  • MS, University of Wisconsin-Madison
Recent Feedback
  • "Your explanation to the answers were very helpful."
  • "What does 1 and 0 means in the repair column?"
  • "Went through all of the formulas, excellent work! This really helped me!"
  • "try others as well please"
  • "Thank you, this helped a lot. I was not sure how to plug in those numbers to a formula. This was a great help. Now I have to figure out how to explain cost of capital is used in net present value analysis, and how cost of capital is used in net present value analysis. This stuff gets confusing."
Purchase this Solution


Free BrainMass Quizzes
Marketing Research and Forecasting

The following quiz will assess your ability to identify steps in the marketing research process. Understanding this information will provide fundamental knowledge related to marketing research.

Organizational Leadership Quiz

This quiz prepares a person to do well when it comes to studying organizational leadership in their studies.

Organizational Behavior (OB)

The organizational behavior (OB) quiz will help you better understand organizational behavior through the lens of managers including workforce diversity.

Academic Reading and Writing: Critical Thinking

Importance of Critical Thinking

Income Streams

In our ever changing world, developing secondary income streams is becoming more important. This quiz provides a brief overview of income sources.