Suppose the risk free rate (rfr) = 5%, average%3Dmarket return (rm) = 10%, and the requiredor expected rate of return E(r) = 12% for%3DTNG stock.(a) Calculate the Beta for TNG.(b) If TNG's Beta = 2.0, what would be TNG'snew required or expected rate of return (r)?

In the given question we have two parts: In the first part we need to calculate the Beta of TNG In…

Suppose the risk free rate (rfr) = 5%, average market return (rm) = 10%, and the required or expected rate of return E(r) = 12% for TNG stock. (a) Calculate the Beta for TNG. (b) If TNG's Beta = 2.0, what would be TNG's %3D new required or expected rate of return (r)?

Suppose the risk free rate (rfr) = 5%, average market return (rm) = 10%, and the required or expected rate of return E(r) = 12% for TNG stock. (a) Calculate the Beta for TNG. (b) If TNG's Beta = 2.0, what would be TNG's %3D new required or expected rate of return (r)?

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter2: Risk And Return: Part I

Section: Chapter Questions

Problem 7P

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Concept explainers

Risk and return

Before understanding the concept of Risk and Return in Financial Management, understanding the two-concept Risk and return individually is necessary.

Capital Asset Pricing Model

Capital asset pricing model, also known as CAPM, shows the relationship between the expected return of the investment and the market at risk. This concept is basically used particularly in the case of stocks or shares. It is also used across finance for pricing assets that have higher risk identity and for evaluating the expected returns for the assets given the risk of those assets and also the cost of capital.

Question

Suppose the risk free rate (rfr) = 5%, average
%3D
market return (rm) = 10%, and the required
or expected rate of return E(r) = 12% for
%3D
TNG stock.
(a) Calculate the Beta for TNG.
(b) If TNG's Beta = 2.0, what would be TNG's
new required or expected rate of return (r)?

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