CAPM AND REQUIRED RETURN HR Industries (HRI) has a beta of 1 8, while LR Industries’ (LRI) beta is 0 6. The risk-free rate is 6%, and the required rate of return on an average stock is 13%. The expected rate of inflation built into rRF falls by 1 5 percentage points, the real risk-free rate remains constant, the required return on the market falls to 10 5%, and all betas remain constant. After all of these changes, what will be the difference in the required returns for HRI and LRI?

CAPM AND REQUIRED RETURN HR Industries (HRI) has a beta of 1 8, while LR Industries’ (LRI) beta is 0 6. The risk-free rate is 6%, and the required rate of return on an average stock is 13%. The expected rate of inflation built into rRF falls by 1 5 percentage points, the real risk-free rate remains constant, the required return on the market falls to 10 5%, and all betas remain constant. After all of these changes, what will be the difference in the required returns for HRI and LRI?

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter8: Analysis Of Risk And Return

Section: Chapter Questions

Problem 26P

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